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Accounting for overheads part 1 – ACCA Management Accounting (MA)

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  1. Dear John,
    Please acknowledge if the below method can be used as an alternative approach to arriving at the ‘Fixed Overhead’ for Desks & Chairs in Example ‘2’;

    Total FC for Desks: (120,000hrs 梅 140,000hrs) x $700,000 = $600,000
    Fixed Cost ‘Per Unit of Desk’: $600,000 梅 30,000Units = “$20”

    Total FC for Chairs: (20,000hrs 梅 140,000hrs) x $700,000 = $100,000
    Fixed Cost ‘Per Unit of Chair’: $100,000 梅 20,000Units = “$5”

    Thank You Very Much! 馃檪

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  8. Hi john ,
    In example 1 for overhead absorption rate we divide total cost by total unit bit in later examples we divide total cost by yotal hrs….
    As per my understanding you said that their is no specific rule which means we can do both but what if i calculate in exam with one of the option and i get the wrong answer please reply me thanks.

  10. A question I can’t get the sense of:

    Vare produces inks at its Normanton factory. Production details for process 1 are as follows:
    Op Work in prog, 1 April 400 units 60% complete
    Cl work in prog, 30 Apri 600 Units 20% complete
    Unit Started 1000
    Unit finished 800
    The degree of completion quoted relates to the labour and overhead costs,. 3/4 of the materials are added at the start of the process and remaining quarter added when the process is 50% complete. the company uses FIFO method of cost allocation.

    Waht are the equivalent units f production for materials in the period?

  11. Hi sir. like we expressed every cost by ‘per desk’ or ‘per chair’, why not do the same for labour? I mean in the examples we were doing labour cost was expressed per hour giving an assumption of a single labour. what if it takes 3 to 4 labours to make a single desk? please clarify. thanks.

    • We do express the cost per unit. The labour cost per desk is $8.

      We calculate the cost per unit by multiplying the number of hours by the labour rate per hour. It is no different that the way we calculate the materials cost – we multiple the number of kgs by the cost per kg.

      If it took 3 workers to make a desk then we would use the number of hours the 3 workers took in total.

  13. Good Morning Sir,

    I had a query regarding the Fixed O/Hs workings in example 2 & 3.

    The Fixed O/H in example 2 is $20 for Desks & $5 for Chairs , however in example 3 the Fixed O/H are $19 ( Desks ) & $6.5 ( Chairs ).

    My question is why is there this difference between the 2 examples although the number of hours each item spends in the respective department hasn’t changed ( 4 hrs & 1hr )

    The Fixed costs are still $700,000 also.

    Is this minor change in amount due to the apportioned costs of 60% : 40% , which are quite random in nature ?

    Thank you for your reply in advance.

    • The difference is because we are calculating an absorption rate for each department separately rather than doing it for the factory as a whole.

      The difference here may be minor, but it could be a lot greater.

      You say that the apportioning is quite random, but that is not true as you will see in the later examples. It is always impossible in practice to apportion precisely but in practice we attempt to apportion as sensible as possible (and obviously in exams we do what we are told).

  15. Hello Sir,

    Thanks for the lecture.

    But I think the overheads absorption rate in example 1 should be 3.5 [= 700 000/(50 000*4)] and 14 (=4*3.50) is total fixed costs.

    Could you please tell me if understand correctly about this point?

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