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Sir if FOAHs are apportioned on the basis of direct labour hours then can we say that a product has high fixed OHs per unit because it has the highest direct labour per unit(say out of 3 products-even though it may not have highest volume among 3 products) and hence apportioned more fixed ohs/unit.
its confusing me because the product with highest volume will have highest total fixed overheads but the product with the highest DLH requirement per unit basis, will have highest FOH/unit. so when comparing their respective ABC results with traditional costing figures we say that FOHs were apportioned more to it because of higher volume or DLH requirement per unit….???
You cannot say that the product with the highest volume will always have the highest total fixed overheads.
Suppose the fixed overhead absorption rate is $2 per hour. Suppose one product takes 1 hour per unit and the volume is 1,000 units. Another product takes 5 hours per unit and the volume is 300 units.
Also, when comparing traditional absorption with ABC, it is the cost per unit of each product this is most important rather than the total overheads for each product.
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