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Sir another question from the Kaplan exam kit f2
A cost centre has an overhead absorption rate of $4.25 per machine hour, based on a budgeted activity level of 12,400 machine hours.
In the period covered by the budget actual machine hours worked were 2% more than the budgeted hours and the actual o/h expenditure incurred in the cost centre was $56389. What was the total over or under absorption of overheads in the cost centre for the period?They said : actual expenditure 56389
Absorbed cost (12400*1.02*4.25) 53754
___________
Total under absorption. 26351. Where did the 1.02 come from
2. How will I know if it is over or under absorbed again (basic rule)Many thanks ,
MijMultiplying by 1.02 is the same as adding on 2% (to get the actual hours).
The rule is simply that if we have absorbed (charged more) than we should have then we have over absorbed.
All the rules and explanations are covered in the free lectures.
There is nothing more to elaborate!
The question says that actual hours are 2% more than the budgeted hours, and I have already explained that multiplying by 1.02 is exactly the same as adding on 2% (try it yourself and see what I mean 🙂 )
Hi Mr Moffat
I am now studying MA2 and FA2 where can I find your lectures
Do I need to pay?
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