Accounting for overheads part 1 – ACCA Management Accounting (MA)
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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
That would have been fine – nobody looks at your workings in the exam, all the computer marks is the final answer. However if the question has just asked for the absorption rate then obviously this would not have been fine because the absorption rate is $5 per hour.
Noted,
Thank You for the prompt response!
Good morning sir, does the estimated overhead p.a relate to the overheads in producing products or all overheads of the company including administrative costs?
It depends on what the question says, but for standard costing it is just the production overheads.
why do we not charge variable overheads in cost per unit?
We do if there are any variable production overheads. Which example are you referring to?
By definition, variable overheads vary with the level of production and would therefore be charged on a per unit basis.
Hi,
Could you please tell me which study material is better for Acca? Bpp or kaplan?
They are both good and are both ACCA Approved. I prefer BPP, but everybody has their own preferences.
sir in example 2, why did you calculate hours and not an alternate
Because the question says “Overheads are to be absorbed on a labour hours basis”.
(Did you download our free lecture notes before watching the lecture?)
You are so clear and straightforward and precise with everything you teach! I am self studying and have been advised to use opentuition along with BPP and/or Kaplan revision kit because I can鈥檛 afford tuition. I am hopeful that I will pass with a remarkable grade because of you Mr and John and off course God Almighty!
Thank you for your comment 馃檪
Am Alllen from Uganda. ve also chosen to carry on with opentution alongside BPP workbook and the Revision Kit… But is it the best advice or something not told?
Great
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.
Everything seems to be nice and easy but after the lecture when I go to the first example then the next one is forgotten.
But fantastic John!
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?
You must ask this kind of question in the Ask the Tutor Forum and not as a comment on a lecture.
Apologies. Shall do, still getting way around.
No problem 馃檪
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.
Hi John,
At the end where did you get the time spent eg:
3h X..
1hr X
and
1/2 x$3 etc , Where these hours spent as estimated?
They are given in the question. Have you downloaded the free lecture notes as explained at the start of each lecture?
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).
Dear Sir,
Thank you for timely response. I appreciate you taking the time out to do so.
Wish you a wonderful day ahead.
Thank you for the lesson Sir.
You are welcome 馃檪
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?
The absorption rate per unit is the fixed costs (700,000 per year) divided by the units produced per year (50,000).
The total fixed costs are given in the question and are $700,000.
can you please explain how these numbers coming 240000
600,000(40%)
can you please guide I am struck in it
600,000 x 40% (0.4) = 240,000
or another way: 600,000 x 40/100 = 240,000
great lecture
Thank you for your comment 馃檪