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Actual hours worked were less than the budgeted hours used to set the predetermined overhead absorption rate and actual overhead expense was as budgeted
sir how it is under absorbed? i dont get the logicWhere actual activity levels are less than budget then the overhead will be under absorbed as not enough activity has occured at the budgeted rate to cover the overhead, assuming the actual overhead expense was as budgeted.
this logicThe amount absorbed when calculating the profit is the actual hours multiplied by the absorption rate. The absorption rate was calculated by dividing budget total fixed overheads by budget hours. So if actual hours are less than budget the amount being charged will be less than budget total.
This is all explained in my free lectures. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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