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A company manufactures two products L and M in a factory divided into two cost centres, X and Y. The following budgeted data are available :
Allocated and apportioned fixed overhead costs
for Centre X $88,000 Y 96,000
Direct labour hours per unit for
Product L 3.0 (Centre X) 1.0 (centre Y)
Product M 2.5 (Centre X) 2.0 (centre Y)
Budgeted output is 8000 units of each product. Fixed overhead costs are absorbed on direct labour hour basis.
What is the budgeted fixed overhead cost per unit for Product M?
A. $ 10
B. $ 11
C. $ 12
D. $ 13Dear Sir the answered given is C. Can you show me the right workings for this question?
The way i attempted this question is taking Fixed Overhead Costs divide by budgeted output.
Cost centre X = $ 88,000 / 8000 units = $11
Cost centre Y = $ 96,000 / 8000 units = $12
Taking the average of both centres per unit = ($11+$12)/2 = $11.50,which not among the answers provided.
Thank You
The question says that the overheads are absorbed on direct labour hours (not on units).
So, for department X, the total hours are (8000 x 3.0) + (8000 x 2.5) = 44,000 hours.
So the overheads per hour are $88,000 / 44,000 = $2 per hour.
You can get the absorption rate for department Y using the same approach.
Then to get the overheads per unit of M, you take 2.5 hours at the absorption rate for department X, plus 2.0 hours are the absorption rate for department Y
Thank you sir. May i know where i can get more questions on Management Accounting Topics apart from Past Year Questions?
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