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When we find OAR = Budgeted OH / Budgeted activity level ..
Is it budgeted fixed oh in the numerator ? why dont we take variable oh there ?
It depends on the question, but it would make no difference in the end because variable overheads will be per unit anyway.
Unless the question says different it is the fixed overheads that we absorb.
What if Variable OH is given for may be a 1000 units and Fixed OH of 1000 units is also given ?
Also in a question of finiding absorption costing profit, they have included absorbed oh as an item in the COS and again adjusted under absorption.. why is it so
If you are given the variable overheads in total then you divide by 1,000 to get the variable overheads per unit.
With regard to the fixed overheads, how you absorb them depends on what the question says – most likely of course is to absorb per about hour.
For your second question you must watch my lectures because I explain in detail and I cannot possibly type out all my lectures here.
We have to adjust for under or over absorption in the absorption costing profit statement. I dont understand why they have to include Absorbed OH in the Cost of Sales again even after they have adjusted for Under absorption. Its effectively double counting right ?
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