Overhead Allocation, Apportionment and Absorption

2.5 + 2.0 = 4.5

so, 2.5/4.5*88000 + 2.0/4/5*96000

Total cost =$ 91555.56/8000U

So cost per Unit is 11.4

M i rite..:S even m not sure..:S do let me kw plz if m wrong…….

@zforall said:
2.5 + 2.0 = 4.5
so, 2.5/4.5*88000 + 2.0/4/5*96000
Total cost =$ 91555.56/8000U
So cost per Unit is 11.4
M i rite..:S even m not sure..:S do let me kw plz if m wrong…….

Unfortunately I think you’re wrong.

Here’s my attempt:

We need to apportion fixed overheads to each unit of production i.e. divide overheads by the number of units fairly.

We do this by seeing how many labour hours were spent in cost centres X and Y.

In centre X: 3 hours were spent on each unit of product L, 2.5 hours on each unit of product M = 5.5 hours spent in total on 1 unit of L and M.

In centre Y: 1 hour on each unit of product L, 2 hours on each unit of product M = 3 hours spent in total on 1 unit of L and M.

Now the question tells us 8000 units are produced of EACH unit.

So:

Centre X: 5.5hrs x 8000 units = 44,000 hours of labour. Now we apportion $88,000 overheads incurred in X to each labour hour by $88,000 / 44,000 hours = $2 per labour hour spent in cost centre X.

Similarly Centre Y: 3hrs x 8000 units = 24,000 hours of labour. Apportion $96,000 overheads incurred in Y to each labour hour by $96,000 / 24,000 hours = $4 per labour hour spent in cost centre Y.

So each hour of labour in centre X cost $2 and each hour of labour in centre Y costs $4.

We can work out the overhead cost per unit of M now using these figures:

(2.5 hours x $2) + (2 hours x $4) = $13. Which is option D and I believe the right answer given in the back of the notes.

If I’ve got the working out wrong please let me know! I hope this helps.

thanks alot for correcting me:)