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A company has four production departments. Fixed overhead costs are as follows:
Department ? Hours taken
A 10,000 5
B 5,000 5
C 4,000 4
D 6,000 3
The company produces one product, and the time spent in each department is
shown above. If overhead is recovered based on labour hours and budgeted
production is 4,000 units, the fixed overhead cost per unit is:
(a) £6.25
(b) £12.00
(c) £12.50
(d) £17.50Im told the answer is D but I dont know how, the answer I get is A
Hi
I hope you are well?
I think the answer to this will be your Total Fixed Overheads / (Divide by) / Total Labour Hours based on budgeted output of 4000 units. That should give you the Overhead Absorption Rate per unit.
Hope this is right and helps you
Kind regards
Shamil
The correct answer is indeed A.
I do not know which book you found this question in, but assuming that you have copied it out correctly I can only assume that they have made a typing error in their answer.
(In future, if you want me to answer then you must ask in the Ask the Tutor Forum. This forum is for students to help each other 🙂 )
Hi All,
I wanted to ask if my previous reply could be deleted? I Misread the question, this question is based on per unit. So it would have been :
Total Fixed Overheads / (Divide By) / Total Budgeted Units
£25,000 / 4000 Units = £6.25
£25,000 comes from the fixed overheads based on each department – £10,000 + £5,000 + £4,000 + £6,000
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