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question: A law firm recovers overheads on chargeable consulting hours. Budgeted overheads were
$615,000 and actual consulting hours were 32,150. Overheads were under-recovered by
$35,000. Actual overheads were $694,075.
What is the budgeted overhead absorption rate per hour (to 2 decimal places)?
A $20.21
B $20.50
C $21.59
D $22.68sir question is asking budgeted overhead absorption rate per hour
so we should use the budgeted overheads/ budgets hours
but in the solution, they have done it as calculated the absorption overhead=(659,075)/actual consulting hours (32,150)
I don’t understand the reason why they have done by taking absorption overhead and actual consulting hours
does budgeted overhead absorption rate and overhead absorption rate mean the same?
The budgeted overhead absorption rate = the standard overhead absorption rate.
The amount actually absorbed is 694,075 – 35,000 = $659,075.
The amount absorbed is always equal to the actual hours multiplied by the standard absorption rate.
Therefore the standard absorption rate = 659,075 / 32,150 = $20.50.
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