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A company manufactures two products L and M in a factory divided into two cost centres, X and Y. The following
budgeted data are available:
Cost centre
X Y
Allocated and apportioned fixed
overhead costs $88,000 $96,000
Direct labour hours per unit:
Product L 3·0 1·0
Product M 2·5 2·0
Budgeted output is 8,000 units of each product. Fixed overhead costs are absorbed on a direct labour hour
basis.
What is the budgeted fixed overhead cost per unit for Product M?
A $10
B $11
C $12
D $13sir please explain this how do we solve it my answer was coming 12.5 so can i take it to the nearest? please proide the solution as well
You first need to calculate the absorption rate for each of the cost centres.
For centre X, the total hours worked are (8000 x 3) + (8000 x 2.5) = 44,000 hours.
The budgeted overheads are $88,000.So the absorption rate is $88,000/44,000 = $2 per hour.
In the same way you can calculate the absorption rate for centre Y.
Then you can calculate the overhead cost for Product M. It is 2.5 hours in centre X at $2 per hour, plus 2.0 hours in centre Y and the absorption cost per hour for centre Y.
(I do assume that you are watching our free lectures? They are a complete course for F2 and cover everything you need to be able to pass the exam 🙂 )
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