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    Question

    A factory absorbs production overheads at a

    predetermined rate of ₹25 per machine hour. During the month, 8,000 machine hours were worked. The actual production overheads incurred amounted to ₹2,20,000. Which of the following correctly describes the overhead position?
    A Under-absorption of ₹20,000 Correct Answer Incorrect Answer
    B Under-absorption of ₹30,000 Correct Answer Incorrect Answer
    C Over-absorption of ₹20,000 Correct Answer Incorrect Answer
    D Over-absorption of ₹30,000 Correct Answer Incorrect Answer
    E No under/over-absorption Correct Answer Incorrect Answer

    Solution

    Absorbed overhead = 25 x 8000 = Rs.2,00,000 Actual overheads = Rs.2,20,000   Actual overhead > absorbed overheads. As such, there is under-absorption by Rs.20,000.   Note ·        If the overhead absorbed is less than actual, it's termed under-absorption ·        If the overhead absorbed is more than actual, it's termed over-absorption

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