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The following situations arose last year. Would each of these situations cause overheads to be under absorbed or over absorbed and why?
1. Actual overhead expenditure was less than the budgeted expenditure and actual activity level was as budgeted
2. Actual hours worked were less than the budgeted hours used to set the predetermined overhead absorption rate and actual overhead expense was as budgeted
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and explanations!!
The amount absorbed is the difference between the actual hours x the absorption rate, and the actual expenditure. So both of these situations will cause an over or under absorption.
This is all explained in my free lectures on absorption costing.
The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
Sir I tried looking for the answer. For number 2 it just says under absorbed but I can’t figure out why. If hours worked were less than there must have been over absorbed right?
No, if they worked fewer hours then they will have absorbed fewer overheads. So under absorbed.
Have you watched my free lectures on this?
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