Example 1 · level 1
Gupta Auto Parts budgets factory overheads of ₹21,75,000 and 25,000 machine hours for the year. Find the machine hour rate.
Show solution
- Machine hour rate = ₹21,75,000 ÷ 25,000 = ₹87 per hour.
Answer: ₹87
CA INTERMEDIATE: COSTING & FM · OVERHEADS: ABSORPTION COSTING
Overhead absorption rate and under/over-absorption
Absorption rate = Budgeted overheads ÷ Budgeted base (machine hours, labour hours or labour cost). Absorbed = rate × actual base; absorbed > actual → over-absorbed.
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Worked examples
Example 2 · level 2
Joshi Pharma Ltd budgets overheads of ₹67,500 and direct labour cost of ₹1,35,000. Overheads are absorbed as a % of direct labour cost. Job No. 543 has direct labour of ₹5,200. How much overhead is charged to the job?
Show solution
- Rate = ₹67,500 ÷ ₹1,35,000 × 100 = 50%.
- Overhead on job = 50% × ₹5,200 = ₹2,600.
Answer: ₹2,600
Example 3 · level 3
Nair Spices Pvt Ltd set a machine hour rate of ₹73 (budget: ₹13,14,000 for 18,000 hours). Actual: 19,750 machine hours worked and actual overheads ₹13,08,500. What is the position?
- Under-absorbed by ₹1,33,250
- Over-absorbed by ₹1,33,250
- Under-absorbed by ₹5,500
- Over-absorbed by ₹5,500
Show solution
- Absorbed = ₹73 × 19,750 = ₹14,41,750.
- Actual = ₹13,08,500.
- Over-absorbed by ₹1,33,250.
Answer: Over-absorbed by ₹1,33,250