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Hi Ken
Was hoping You could help.
In the solution to Ornamental Co an ABC question dec 08 i think – var overhead material cost under absorption costing is $90.
Can you please tell me how this is worked out. I can work out the abc working just cant follow the logic of how the material and labour overhead production costs are attributed.
Absorption is overheads/base.
Overheads is 2,400,000 and they use total material an labour cost as base.
Please help ?
2,400,000 is split to 30% material = 720,000 and 70% labour = 1,680,000
Total material used (000)= 450 + 150 + 1,200 = 1,800; material/fountain = 450/2 = 225
Total labour used (000)= 300 + 100 + 1,200 = 1,600; labour/fountain = 300/2 = 150So, for Fountain, under the old method, absorption amounts are
Related to material: 225 x 720,000/ 1,800,000 = 90
Related to labour: 150 x 1,680,000/1,600,000 = 157.50
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