Overhead costs

Hi Sir,

1) The budgeted absorption rate for variable production overhead in department X is $2.50 per direct labour hour and for fixed overhead is $4 per direct labour hour. Actual direct labour hours worked fell short of budget by 1,000 hours. If expenditures were as expected for variable and fixed overheads, the total under-absorbed overhead for the period would be:
A $0 B $2,500 C $4,000 D $6,500

here I answer A. because if we assume the same expenditure rate with less activity there would be over not under-absorption I think/assume… but the answer is 4000 and I don’t get it really why is that so?

2) A firm had opening inventories of 33,480 units and closing inventories of 25,920 units. Profits using marginal costing were $228,123 and using absorption costing were $203,931.

The fixed overhead absorption rate per unit (to the nearest cent) was $?

I used the high-low method and find out the variable cost per unit but… I don’t get it one thing. They did exactly what I did. But the problem here is that when we calculate the high-low method in this case:

Change in inventory = 33,480 units- 25,920 units = 7,560 units
Difference in profit = 228,123 – 203,931 = $24,192

Variable overhead per unit = 24,192/7560=3.20

They did the same thing but instead of “calling” it Variable they “called” it

“Fixed overhead full rate” = 3.20

can you explain why ?

3) Product X is produced in two production cost centres. Budgeted data for product X are as follows.

Cost centre A Cost centre B
Direct material cost per unit $60.00 $30.30
Direct labour hours per unit 3 1
Direct labour rate per hour $20.00 $15.20
Production overhead absorption rate per direct labour hour $12.24 $14.94

General overhead costs are absorbed into product costs at a rate of ten per cent of production cost. If a 20 per cent return on sales is required from product X, its selling price per unit should be, to the nearest $0.01:

In this example, I have done everything accurately with regard to total cost which is 238.88 but I don’t get it why they calculated profit differently.

my working:

238.88+(238.88*20%)=287

but they calculated like this: 238.88*20/80=59.72 And then added this result to the total cost 238.88+59.72=298.60

how am I supposed to understand that I should calculate profit like this but not as I did? I know how profit margin and mark-up work but they don’t indicated such a thing so I am a little bit confused here.

Thanks in advance