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A company uses an overhead absorption rate of $3.50 per machine hour, based on 32,000 budgeted machine hours for the period. During the same period the actual total overhead expenditure amounted to $108,875 and 30,000 machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period?
ANSWER IS Under absorbed by $3,875
I THINK IT SHOULD BE OVER ABSORBED BY 3875
MY LOGIC
Actual o/h exp. 108875 (from the qn)
STD exp per 30000 hrs 105000
(30000 x 3.5)
Answer: 3875 over absorbed because ACTUALLY 3875 more was
spentThe actual amount is the amount actually spent!!
The amount absorbed is 108875 and because this is less than the actual amount (the amount actually spent) they have under-absorbed.
hi all, for my understanding :
under absorbed that is because in budgeting only expected to the cost $105,000 but in the actual production the cost only did use $108,875 therefore for budgeting is under absorption :budget overheads cost$105,000
actual overheads cost $108,875
under absorbed $3875thank you
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