Recovery of overheads on percentage of direct wages basis is calculated as:
A(Overheads / Direct wages) × 100
B(Direct wages / Overheads) × 100
COverheads × Hours
DWages × Hours
Answer & Solution
Correct answer: A. (Overheads / Direct wages) × 100
1. Percentage on direct wages basis expresses overhead as a fraction of wages.
2. Numerator is overheads; denominator is direct wages; multiplied by 100 to obtain a percentage.
3. The result is applied to actual direct wages per job to absorb overhead.
4. Hence the correct formula is (Overheads / Direct wages) × 100.
_Source: ICAI BoS Inter Paper 3, Ch 4 "Overheads", §4.5.1 ¶4_
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