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absorption

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › absorption

  • This topic has 3 replies, 2 voices, and was last updated 11 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • June 19, 2014 at 7:23 pm #177242
    Miss NM
    Member
    • Topics: 12
    • Replies: 23
    • ☆

    Hi Sir Plz help with this question:

    A company makes two products, reds and blues. Total fixed overheads to absorb during may are $60000. Budgeted production levels for reds for may are 10000 units. Twice as many blues and reds are to be produced. Each red takes I hour and each blue takes 0.25 hours. Overhead are to be absorbed on a labour basis.

    What is the overhead absorption rate for each finished blue?

    June 20, 2014 at 9:25 am #177280
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    I assume that you mean twice as many blues AS reds are to be produced?

    If so, then 10000 reds are budgeted to be produced and 20000 blues.

    Total time for reds = 10000 x 1 hour = 10000 hours.
    Total time for blues = 20,000 x 0.25 = 5,000 hours
    So total time = 15,000

    So absorption rate = 60000/15000 = $4 per hour.

    So for a blue it is .25 hours x $4 = $1 per unit

    Which bit was causing the problem?

    June 20, 2014 at 10:33 am #177290
    Miss NM
    Member
    • Topics: 12
    • Replies: 23
    • ☆

    The last bit Sir.. but now I got the point. Thnx again Sir. 🙂

    June 20, 2014 at 3:24 pm #177318
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are welcome 🙂

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