The overhead of a production department for a period is ₹42,000. Other data: direct material cost ₹80,000; direct wages ₹60,000; direct labour hours 20,000; machine hours 12,000; units produced 24,000. Compute the overhead absorption rate under (i) the production unit method, (ii

Question

The overhead of a production department for a period is ₹42,000. Other data: direct material cost ₹80,000; direct wages ₹60,000; direct labour hours 20,000; machine hours 12,000; units produced 24,000. Compute the overhead absorption rate under (i) the production unit method, (ii) percentage on direct material cost, (iii) percentage on direct wages, (iv) percentage on prime cost, (v) direct labour hour rate, and (vi) machine hour rate.

Accepted Answer

The overhead to be absorbed is ₹42,000. Each method divides it by (or expresses it as a percentage of) a different base.

**(i) Production unit method** = overhead ÷ units produced = 42,000 ÷ 24,000 = **₹1.75 per unit.**

**(ii) Percentage on direct material cost** = (overhead ÷ direct material) × 100 = (42,000 ÷ 80,000) × 100 = **52.5%.**

**(iii) Percentage on direct wages** = (overhead ÷ direct wages) × 100 = (42,000 ÷ 60,000) × 100 = **70%.**

**(iv) Percentage on prime cost** — prime cost = direct material + direct wages = 80,000 + 60,000 = ₹1,40,000; rate = (42,000 ÷ 1,40,000) × 100 = **30%.**

**(v) Direct labour hour rate** = overhead ÷ direct labour hours = 42,000 ÷ 20,000 = **₹2.10 per labour hour.**

**(vi) Machine hour rate** = overhead ÷ machine hours = 42,000 ÷ 12,000 = **₹3.50 per machine hour.**

| Method | Computation | Rate |
|---|---|---|
| Production unit | 42,000 ÷ 24,000 | ₹1.75 per unit |
| % on direct material | 42,000 ÷ 80,000 × 100 | 52.5% | …

Step	Working	Rs.
Prime cost	Direct material 200 + Direct labour 300	500
Factory cost	given	1,000
Factory overhead	Factory cost − Prime cost = 1,000 − 500	500

Q.The overhead of a production department for a period is ₹42,000. Other data: direct material cost ₹80,000; direct wages ₹60,000; direct labour hours 20,000; machine hours 12,000; units produced 24,000. Compute the overhead absorption rate under

Concept understanding — Absorption of Overheads and Overhead Rates

Method	Computation	Rate
Production unit	42,000 ÷ 24,000	₹1.75 per unit
% on direct material	42,000 ÷ 80,000 × 100	52.5%

Q.The overhead of a production department for a period is ₹42,000. Other data: direct material cost ₹80,000; direct wages ₹60,000; direct labour hours 20,000; machine hours 12,000; units produced 24,000. Compute the overhead absorption rate under

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