CA Inter P4 · Chapter 4 · Question 9 of 11
In a highly mechanised department where most of the work is done by machines with little manual intervention, the most suitable overhead absorption method is the:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Machine hour rate
Explanation
Where machines dominate production, most overheads (depreciation, power, repairs) are related to machine running time, so absorbing them on machine hours reflects the cause of overheads best. Labour-based methods suit labour-intensive departments.
More Overheads - Absorption Costing Method MCQs
- Q11Department P absorbs overheads on machine hours: budgeted overheads ₹4,50,000, budgeted machine hours 15,000. Department Q absorbs on…
- Q1A machine costs ₹12,00,000, has an estimated scrap value of ₹60,000 and a life of 10 years. It is expected to run 2,000 hours a year, of…
- Q2Budgeted factory overheads were ₹9,60,000 and budgeted direct labour hours 48,000. Actual overheads amounted to ₹9,90,000 and actual hours…
- Q3Where a significant amount of under-absorbed overhead arises because of incorrect estimation of overheads or activity level, the preferred…
- Q4Service department X has primary overheads of ₹84,000 and service department Y has ₹60,000. X renders 20% of its services to Y, and Y…