in calucalting fixed overhead rate why it divided by budgetd machin hours not by the practicla capacity hours .(800/600)
also the information to assist the pricing decision
( direct labour moudling ( 2*5) why why not 4 machine hour although the varible munufactring cost and varible overhead is multiple by 4 machine hours
If we are absorbing fixed overheads on an hourly basis, then we always absorb based on the budgeted hours that we expect to work – it would not be logical to use any other hours since we are trying to get the cost per hour worked.
The only relevance of capacity hours in this question is because it says that general overheads are to be reapportioned on this basis.
Labour is based on 2 hours because the question says that it takes 2 labour hours per unit!
(The overheads have been absorbed on machine hours which is why they have been charged for four hours.)
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