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Morning John,
I need your help please. Although I have the answer to the question, I don’t understand how they worked it out. But I’ll show you what I have.A business absorbs its FPOH on the basis of direct labour hrs.
Budgeted direct labour hrs for wk 24 were 4,200 hrs
During that wk 4,050 were worked and production overhead incurred was $16,700
Overhead was under absorbed by $1,310Budgeted fixed OH for the wk to the nearest $10 was:
Answer provided:
Budgeted Fixed overhead for the wk ( to nearest £10) was $15,960My answer:
Under Absorption of $1310 so:
Actual OH (Prod OH Incurred) $16,700
Under Absorption __($1,310)__
Budgeted OH $15,390OAR = (BOH/BA) $15,390 / 4200 hrs = $3.66 OAR
OH Absorbed = $3.66 * 4050 (Actual Hrs) = $14,840Then I got stuck 🙁 I think I’ve gone wrong somewhere, I don’t know how. I’m confused.
If you watch the lectures you will see that the over/under absorption of overheads is the difference between the actual overheads and the absorbed overheads (NOT the budgeted overheads).
The absorbed overheads are calculated as the actual hours worked multiplied by the standard absorption rate.
The standard absorption rate is budgeted overheads / budgeted hours.
You know the actual overheads, and the under-absorption, so you can calculate the overheads absorbed (15,390).
You know the hours actually worked, and so you can calculate the standard absorption rate ($3.80).
You know the budgeted hours and so you can calculate the budgeted overheads ($15,960)
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