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A company uses a standard absorption costing system. The following details have been extracted from its budget for April
Fixed production overhead cost- $48,000
Production (units) – $4,800In April the fixed production overhead cost was under absorbed by $8000 and the fixed production overhead expenditure was $2000
The actual number of units produced
You need to calculate some stuff first:
1) OAR
2) Absorbed FFOH (Fixed Factory Overheads)1) OAR = Budgeted FFOH/Budgeted Production
= 48000/4800 = $10/UnitFor 2), use formula:
Over/(Under) = Absorbed FFOH – Actual FFOH
So if Ans. is positive, it’s the value with which FFOH are OVER-absorbed and vice versa for negative () value.Putting in values, we get Absorbed FFOH = (8000) + 2000 = $(6000)
Note: Value is bracket is negative value.Now STOP! I think you’ve misquoted the question. The absorbed overheads are coming at -$6000, which isn’t possible. So check the question again?
Anyway, let’s assume the FFOH absorbed was hmm +6000.
Finally, you probably know that:
Absorbed FFOH = OAR * Actual Production/Activity.
You’ve found out OAR = $10 and Absorbed FFOH = $6000 (assumed), plug in values.6000 = 10* Actual Production,
Actual Production = 600 UnitsJust confirm the question again, alright?
Okay, cya.Shahir: Sir Insanity is correct in saying that you cannot have typed out the question correctly. Check again this part “the fixed overhead expenditure was $2,000”!
Done with F2. I got 76%..
I did a mistake by thoroughly focusing on the sums rather than the theories …
I didnt stdy thoeries to a great extent ..
Anyway thanks for yr help sir 🙂If I ever want an answer from a student, I would definitely ask it from my top class mate (Nissan) .
Sir insanity this is for u…..
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