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Extracts from a company’s budget are as follows:
August September
Production units 12,600 5,500
Fixed production overhead cost incurred $9,440 $7,000
The standard variable production overhead cost per unit is $5. Variable production overhead is paid 70 per cent in the month incurred and 30 per cent in the following month.
Fixed production overhead cost is paid in the month following that in which it is incurred and includes depreciation of $2,280 per month.
What is the payment for total production overhead cost shown in the cash budget for September?
A $32,220
B $42,870
C $45,310
D $47,590
Hello tutor,
I have a question related to fixed overhead cash payment, why do we need to deduct the depreciation from fixed production overhead cost to arrive at fixed OH cash payment?
Thank you tutor!
Depreciation is not a cash expense and the question is asking about the cash budget.
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