CAF-5 · Chapter 2 · Question 9 of 10
A company absorbs overheads at a predetermined rate of Rs. 25 per machine hour. During the period, actual machine hours worked were 4,000 hours and actual factory overheads incurred were Rs. 105,000. What is the under or over-absorbed overhead for the period?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 5,000 Under-absorbed
Explanation
Applied Overheads = Actual Hours × Pre-determined Rate = 4,000 hours × Rs. 25 = Rs. 100,000. Since Actual Overheads (Rs. 105,000) are greater than Applied Overheads (Rs. 100,000), the overheads are Under-absorbed by Rs. 5,000.
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