CA Inter P4 · Chapter 4 · Question 4 of 11
Service 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 renders 20% of its services to X (the remaining services go to production departments). Using the simultaneous equation method, the total overheads of X to be apportioned are:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) ₹1,00,000
Explanation
Let X and Y be the total overheads after inter-service transfers. X = 84,000 + 0.2Y and Y = 60,000 + 0.2X. Substituting: X = 84,000 + 0.2(60,000 + 0.2X) = 96,000 + 0.04X, so 0.96X = 96,000 and X = ₹1,00,000. Then Y = 60,000 + 0.2 x 1,00,000 = ₹80,000. Ignoring the reciprocal effect gives ₹96,000.
More Overheads - Absorption Costing Method MCQs
- Q6A single overhead absorption rate computed for the factory as a whole and applied to all products is called a:
- Q7Budgeted factory overheads are ₹6,30,000 and budgeted prime cost is ₹21,00,000. Overheads are absorbed as a percentage of prime cost. A…
- Q8Fixed production overheads are ₹18,00,000 per annum and normal capacity is 60,000 units. Actual production for the year is only 45,000…
- Q9In a highly mechanised department where most of the work is done by machines with little manual intervention, the most suitable overhead…
- Q10Overheads under-absorbed because the factory was closed for two months due to a flood should be: