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In a given year a production department incurred actual overheads of $178,000. Overheads are absorbed actual machine hours and a pre-determined rate per hours. The budgeted overheads for the year was 180000 and the budgeted machine hours were 90000. The overheads for the year were over absorbed by 4000. What were the actual machine hours.
There is no point in simply typing out a test question and expecting me to provide you with an answer! You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about and then I will explain.
The absorption rate is 180,000/90,000 = $2 per hour.
The overheads absorbed were 178,000 + 4,000 = $182,000.
Therefore the actual machine hours were 182,000/2 = 91,000 hours.
I do suggest that you watch 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.
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