Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Overhead absorption rate
- This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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- December 23, 2016 at 5:15 pm #364346
A company has established the following budgeted fixed overheads for the forthcoming period:
…………………………. £’000 ……… Bases of apportionment
Heating and Lighting … 12 …………….. Cubic capacity ……
Welfare costs …………. 7 ………….. Number of employees
Power ………………….. 42 ……………….. Kwh usage ……..
…………………………… –– ………………………………………..
………………………… Total 61
…………………………… –– ………………………………………..Other information:
…………………………… Department 1 .. Department 2 .. Maintenance … Total
Cubic capacity (m3) ……… 6,000 ………… 7,500 ………….. 2,500 ……. 16,000
Employees (number) ………. 20 …………….. 30 ………………. 6 ………….. 56 ..
Power
(kwh usage) ………………. 35,000 ………. 25,000 …………………………. 60,000
Labour hours ……………… 28,000 ………. 48,500 …………………………. 76,500
Machine hours ……………. 40,000 ………. 39,000 …………………………. 79,000The maintenance department splits its time between Department 1 and Department 2 on a ratio of 2:3.
The management accountant has partially completed an allocation and apportionment statement:
…………………. Department 1 .. Department 2 …. Maintenance
……………………….. £ ………………… £ ……………….. £ …….
Heat and Light ….. 4,500 …………… 5,625 ………….. 1,875 …
Welfare …………… 2,500 …………………………………………….
Power ……………. 24,500 …………………………………………….
……………………. ––––––– ……………………………………………
………………… Total 31,500 ………………………………………….
……………………. ––––––– ……………………………………………What would be the overhead absorption rate in Department 1 (to 3 decimal places)?
A £0·788/machine hour
B £0·814/machine hour
C £1·125/labour hour
D £1·163/labour hourThe answer is B but I can’t see where this has come from; e.g. 31,500/40,000 machine hours would give A…
December 23, 2016 at 10:29 pm #364361But maintenance is a service department and therefore needs recharging to departments 1 and 2 as per the question (i.e. in the ratio 2:3).
Have you watched my free lecture on the recharging of service departments?
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