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while calculating OAR, should i take budgeted sales unit or budgeted production unit?
production is 14000 units
sales is 12000
units
normal level of activity 14000 unitsso when we need to calculate we do budgeted O/H /budgeted hour or unit.
in the answer it shown overhead/14000.
is this 14000 normal activity or production units?
what is the meaning of normal level of activity? is not it the same meaning of actual activity means production?
Normal level of activity is the expected (i.e. budgeted) level of activity. Level of activity is the level of production.
The expect to produce 14,000 a month – some months they may well produce more and some months they may well produce less.
The absorption rate is always calculated bases on expected (i.e. budgeted) figures, and is always based on production – to base on sales units would be meaningless. The whole object is to estimate the production cost per unit.
if in a question there is normal activity level 10000 and budgeted production unit 12000.which amount should i take for OAR calculation as both r same meaning?
yes sir,i got my answer.as this two mean the same the units cant b different.they always b the same . thank you sir.
hello sir my name is jibran. my question is regarding OAR only.in first part we do study overheads are apportioned to cost centers . if we are apportioning this means we absorbing right ? and then in very next part they say to absorb we have to calculate OAR .why do we calculate OAR ?
thanks.
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