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Overheads

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Overheads

  • This topic has 3 replies, 2 voices, and was last updated 2 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 17, 2022 at 12:05 pm #669024
    reckless
    Member
    • Topics: 45
    • Replies: 112
    • ☆☆

    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?

    October 17, 2022 at 3:31 pm #669068
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    It 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.

    October 17, 2022 at 8:28 pm #669106
    reckless
    Member
    • Topics: 45
    • Replies: 112
    • ☆☆

    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!

    October 18, 2022 at 7:38 am #669149
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    No we would not. The whole exercise relates to absorbing the costs.

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