Question

Factory expenses actually paid Rs. 10,000. Rate of recovery is 30% of direct labour. Direct labour is Rs. 25,000. It shall be_____

Answer 1

Answer:

30000

Explanation:

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Answer 2

The factory expenses should be ₹7500.

Explanation:

Given: Factory expenses actually paid: 10000

           Rate of Recovery: 30% of direct labor.

           Direct labor: ₹25000

Asked: Factory expenses.

Solution:

• Factory expenses are recorded in the cost sheet on the basis of assumption.
• By taking the recovery rate as the assumption.
• It gets differs from actual factory expenses many times.
• To remove that difference we should analyze the difference and record the under or over-recovery of overheads.
• Factory expenses actually paid: 10000
• Rate of Recovery: 30% of direct labor
• Direct labor: ₹25000

• The direct labor cost should be 25000@30% = ₹7500.
• Here, is the under-recovery of overheads.