CA Inter P4 · Chapter 14 · Question 1 of 7
The overheads of a factory are ₹3,36,000 at 60% capacity and ₹4,08,000 at 80% capacity. Assuming overheads are semi-variable and behave linearly, the overheads in a flexible budget for 95% capacity are:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) ₹4,62,000
Explanation
Variable overhead per 1% of capacity = (₹4,08,000 - ₹3,36,000) / 20 = ₹3,600. Fixed overhead = ₹3,36,000 - 60 x ₹3,600 = ₹1,20,000. At 95%: ₹1,20,000 + 95 x ₹3,600 = ₹1,20,000 + ₹3,42,000 = ₹4,62,000. Scaling total overheads proportionately ignores the fixed element.
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