Traditional and Activity Based Costing

AAbduraimov8y ago

Good afternoon, sir... I am really thankful for your lectures... They are actually useful for my studies... I have got a question, here in this lecture it is said that in Traditional Costing, Overhead Absorbtion Rate = Total O/Hs over Total Labour Hours... But I have found some cases O/H Absorbtion Rate = Total O/Hs over Total Machine Hours... Can you please explain when we should divide to Machine Hours and when is divided to Labour Hours...???

C-Cath - CIMA Tutor8y ago#1

Hi, thank you for the feedback - great that you are finding our videos useful. Traditional absorption costing can use labour or machine hours as a basis for absorption of overheads. Machine hours should be used in a machine intensive / automated environment - whereas labour hours is more suitable in a person intensive manual environment. Thanks Cath

AAbduraimov8y ago#2

Thanks a lot... Now I see!

C-Cath - CIMA Tutor8y ago#3

Excellent! You’re welcome!

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