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    • If you watch all of the lectures for this chapter, then this is all explained.

      If there is only one product then overhead per unit would be the same as overhead per hour.

      However, if (for example) you have one product that takes 1 hour per unit to produce, and another product that takes 2 hours per unit to produce, then it is only sensible to charge the second product with twice as much overheads per unit that the first product.
      We achieve this by calculating a cost per hour, and then a cost per unit by multiplying the cost per hour by the number of hours per unit.

  2. Mr. Moffat,

    I’ve attempted to do the test on this chapter, but can’t quite get the right answer to question 3. I get $10 and the answer is $13. My workings are the following. Total Overhead costs for Product X = 88,000 divide that by total hours worked on Product X (8000 *2.5) answer is 4.4, same thing for product Y (96,000/16000) = 6. Therefore, total overhead cost per unit is 10. What am I missing? Thanks in advance for the help

    Rachel

    • I think you are referring to test question 4 (not 3).

      Look back at the way I answered example 3 in the lecture, because it is exactly the same idea.

      You need to work out an absorption rate for each of the two departments separately.

      There are no products X and Y – they are departments. The products are L and M.

      So the absorption rate for department X is $88,000 / (( 8,000 x 3.0) + (8,000 x 2.5)) = $2 per hour.
      You need to do the same for department Y.

      Then you can calculate the cost per unit for M as 2.5 hours at $2, plus 2 hours at the absorption rate for department Y.

      • Mr. Moffat,

        Yes, it was indeed question 4, and the Products X and Y that I was referring to were supposed to be L and M, apologies for the confusion. I got the right answer now. My mistake was to calculate the overhead costs by product (i.e. picking the numbers horizontally) instead of by department (then multiplying by the number of hours it takes for each product). Is it safe to say that that is the correct approach every time? i.e. to calculate departmental absorption cost first?

        Thanks again!

        Rachel

  4. Sir, I used to see your lecture videos on my android phone but, suddenly the browser just stopped working and up till now, I have not been able to see the videos again. I also downloaded several browsers but no result. Please what can I do? Or have you restricted people from Nigeria from viewing your videos?

  5. hi sir
    i want to ask you that i looked many questions on under/over absorption in bpp kit but i didnt see any lectures on it and also in course notes so please tell me is it in course of f2 in 2015 because i have old edition book of bpp

  6. sir
    i want to ask you that i look many questions on under/over absorption in bpp kit but i didnt see any lectures on it and also in course notes……so please tel me is it in course or not because i have a book of bpp 2011 edition….

  8. Hi.

    I used the production to do my overhead absorption…… 3:2 Ratio

    Desk = 700000*3/5 = 420000/30000 = $14.00
    Chair= 700000*2/5 = 280000/20000= $14.00

    I know that this is not correct based on your explanation. But can you explain yes we are using the production hours and not the production units?

    • In real life you can deal with the overheads in whichever way you think more sensible.
      In exams you are told how to absorb them, and this questions says in the last line that they are to be absorbed on the basis of labour hours.

      The logic is that if each desk takes 4 times as long as a chair in the factory, then it would seem only fair that they should be charged with 4 times as much in factory overheads.

      (Had the question said to absorb on a unit basis, then your answer would be correct. Although you made it too complicated – all you would need to do is divide total overheads by total unit – $700000/50000 = $14 per unit)

    • It depends which paper you want.

      There are three financial accounting papers – they are F3, F7 and P2 (F3 is the basic – P2 is the most advanced)

      You can find links to then from the main ACCA page.

      • Sir moffat, I got a personal question. I already passed my F3 ( 26 th dec 2013 ). But on my examination status on acca global it said that F3 financial accounting to be attempted. Why it didn’t said that i pass. I got 54 % and was taking private tuition with a tutor.

      • I assume that you took the computer based exam and that it was at a licensed centre?
        The firm of tutors that administered the exam should have uploaded the result to the ACCA and it should then have appeared on your account within 72 hours.

        Did you receive a provision notification of your result immediately you finished the exam?

        You need to contact the place where you took the exam and ask what has happened. If they do not sort it out then you need to email the ACCA as soon as possible.

      • Yes i took a CBE exam and it was a licensed centre. I received an email from the admin of acca global on 27 th dec confirming that i passed my F3 but it still don’t appear on my examination status. I hope that i won’t have to take the exam again

  11. Hi

    Regarding example 2:

    I know this is wrong, but WHY couldnt you work out FIXED COSTS fro desks and chairs as follows:

    LBR HRS for desks = 30 000 x 4 = 120 000
    And so Fixed costs per desk = 700 000/120000 = 5.83

    LBR HRS for chairs = 20 000 x 1 = 20 000
    And so Fixed costs per chair = 700 000/20 000 = 35

    Thanks

  15. Hi would appreciate help with his Question

    The following Data relates to a company’s Overhead Cost

    time: 3 yrs ;OutPut (unit) 2000 : O/H Cost 8,800: Price Index 132

    Current year: Output (unit) 5000: O/H Cost 31000: Price Index 164

    Using the High Low Technique. what is the Variable cost per unit ( to the nearest $0.01) express in the current year.

    • What you need to do is restate the ‘3 years’ (I assume you mean three years ago) in current year prices.

      To do this, you take the cost in the question (8800) and multiply it by 164/132.

      When you have done this, you can use the normal high/low technique and the variable cost that you calculate will be in current year prices.

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