Prod OHs. DM cost DL cost
Depart 1 $27000. $67500. $13500
Depart 2 $18000. $36000. 100000
D.L hours 2700 depart 1
25000 depart 2
Machine hrs 45000 depart 1
300 depart 2
Individual direct labour employees within each department earn differing rates of pay, according to skills, grade and experience
Sir we have to find appropriate production OH absorption rate for depart 1 and we chose $0.6 per machine hr
Could you please tell me why did we select machine hr, i read your reply to this question in different post that depart 1 does most of it's work with machine hrs, but sir we earn 10$ per labour hr comparing to machine, also we got high direct labour cost % why didn't we select that?
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3y ago#1It is nothing to do with how much is being earned.
If most of the work is being done of machines then it makes sense to absorb the costs on the basis of machine hours. If most of the work is being done by labour then it makes sense to absorb the cost on the basis of labour hours.
If it would've asked how much is being earned, would we use direct labour cost instead? Since it shows high % sir? The rest i got it, thankyou!
3y ago#3No we would not. The whole exercise relates to absorbing the costs.
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