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an organisation absorb overheads based on units produced .in april 220 000 units were produced and actual overheads were $1000000.overheads were $100000 over absorbed in The month
What was the oar per unit ?
Don’t have any answer choices
Thanks
Ok. So OAR is always calculated as budgeted overheads divided by budgeted units produced.
In this question they already told us that OAR is based on 220 000 units and we just have to work out the budgeted overhead.as the actual overhead is given already. Its pretty simple. It says the actual overheads were 1.000.000 and were over absorbed by 100.000.
Lets think about it for a second. If it is over absorbed that means that the actual overhead incurred is less then budgeted.So if 1,000,000 is actual and we add 100.000 to it we will get the budgeted overheads. Once we have budgeted overheads we will divide it by 220.000 and get the OAR. So.
1,000,000 + 100,000 =1,100,000/220,000= 5 per unityou can check it or you can think about it this way for the purpose of understanding that you multiply 5 which is OAR with number of units to see how much of it is absorbed and in this case you multiply with 220000 and will get 1,100,000. which is clearly 100,000 more then the actual 1,000,000
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