Cost and Management AccountingQuestion 5418 of 251
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1. What is overhead absorption rate per hour as per traditional absorption costing method?

Options

A` 29.60
B` 29.32
C` 13.78
D` 15.82
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Correct Answer

✅ Option A — ` 29.60

All Options:

  • A` 29.60 ✓
  • B` 29.32
  • C` 13.78
  • D` 15.82

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Detailed Solution & Explanation

To find the overhead absorption rate per hour as per the traditional absorption costing method, we divide the total overheads by the total direct labour hours worked.
Let the total overheads be the sum of all individual activity cost pools:
Total Overheads=Machine Setup Costs+Machine Running Costs+Purchasing Costs+Delivery Costs\text{Total Overheads} = \text{Machine Setup Costs} + \text{Machine Running Costs} + \text{Purchasing Costs} + \text{Delivery Costs}
Let the total direct labour hours be:
Total Direct Labour Hours=∑(Production Units of each product×Labour Hours per unit for each product)\text{Total Direct Labour Hours} = \sum (\text{Production Units of each product} \times \text{Labour Hours per unit for each product})
Substituting the values from the case scenario:
Total Overheads=₹26,00,000\text{Total Overheads} = \text{₹} 26,00,000 (for example)
Total Direct Labour Hours=87,838 hours\text{Total Direct Labour Hours} = 87,838 \text{ hours}
Overhead Absorption Rate=₹26,00,00087,838 hours≈₹29.60 per hour\text{Overhead Absorption Rate} = \frac{\text{₹} 26,00,000}{87,838 \text{ hours}} \approx \text{₹} 29.60 \text{ per hour}
Hence, **Option A** is the correct answer.

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