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Good afternoon, sir… I am really thankful for your lectures… They are actually useful for my studies… I have got a question, here in this lecture it is said that in Traditional Costing, Overhead Absorbtion Rate = Total O/Hs over Total Labour Hours… But I have found some cases O/H Absorbtion Rate = Total O/Hs over Total Machine Hours… Can you please explain when we should divide to Machine Hours and when is divided to Labour Hours…???
Hi, thank you for the feedback – great that you are finding our videos useful.
Traditional absorption costing can use labour or machine hours as a basis for absorption of overheads.
Machine hours should be used in a machine intensive / automated environment – whereas labour hours is more suitable in a person intensive manual environment.
Thanks
Cath
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