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hi sir ,,could u please tell me that how the company currently absorbs material related and labour related overheads,,i cant find out what percentages ,,,they say in the question that the company uses company wide percentages on total direct labour and total direct material cost to currently absorb overheads..i dont know how they get material related 90 labour related 157.50 for fountain and 15 for material related 26.25 for labour related of Goblin..what percentages were being used how to calculate this????
Absorption is traditionally worked out using budget figures. So for materials, the budgeted use is:
2000 x 450 + 4,000 x 150 + 16,000 x 1200 = 20700000
30% of the $2,400,000 variable oh relate to material = 720,000
Absorption rate per $ of material is therefore 720,000/2,070,000 = 0.347826, or 0.35, rounded
Amount that will be absorbed into a Fountain will therefore be 0.35 x 450 = 157.50
Similarly for other amounts.
Sir i m getting some confusion with the zeros…its like i get 720000/20700000: 0.0347or0.035 n get 450×0.035: 15.615..the answr has this figure for labour 157.50 not material…thanks for the help
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