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sir,
In Question 4 I am not getting how did the examiner has worked out the overheads.
Please guide me to it’s working.
Thanks
You will have to be more specific as to which bit of the workings you are not clear about – is it the current way of absorbing, or the ABC way?
The total overheads of $2,880,000 are given in the question.
The question says that they currently use absorption costing based on machine hours.
They produce 1,000,000 CB’s and each CB takes 6 minutes. So in total they will spend 1,000,000 x 6/60 = 100,000 hours.
They produce 10,000 TJ’s per month, so 120,000 a year. Each TJ takes 10 minutes, so in total they will spend 120,000 x 10/60 = 20,000 hours.
So the total hours are 100,000 + 20,000 = 120,000 hours.
Therefore the absorption rate is 2,880,000 / 120,000 = $24 per hour.
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