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A company manufactured two products P1 and P2 in a factory divided into two cost centres, X and Y. The following budgeted data are available:
Cost Centre
X Y
Allocated and apportioned fixed overhead costs RM88,000 RM96,000
Direct labour hours per unit:
Product P1 3.0 1.0
Product P2 2.5 2.0
Budgeting output is 8,000 units of each product. Fixed overhead costs are absorbed on a direct labour hour basis.
What is the budgeted fixed overhead cost per unit for each product?You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about – then I will explain.
Calculate the absorption rate per hour in each of the two cost centres. Then you can calculate the fixed overhead per unit for each of the two products.
I go through similar examples in my free lectures on overheads. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
Yes, that answer is correct.
The absorption rate for cost centre X is $2 per hour and for cost centre Y is $4 per hour.
Therefore P1 is 3 hours at $2 plus 1 hour at $4, and P2 is 2.5 hours at $2 and 2 hours @ $4.
Have you watched my free lectures on this?
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