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under/over absorbed overhead

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › under/over absorbed overhead

  • This topic has 1 reply, 2 voices, and was last updated 2 weeks ago by John Moffat.
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  • February 28, 2023 at 10:26 am #679774
    linda268
    Participant
    • Topics: 3
    • Replies: 1
    • ☆

    The budgeted overhead absorption rate for variable prduction overheads in department A of Lublin’s factory is $3.00 per direct labour hours and for fixed overhead is $4.50 per direct labour hour. Actual direct labour hours worked exceeded the budget by 500 hours.
    If the expenditure were as expected for variable and fixed overheads, the total over-absorbed overhead for the period would be:
    A $507.50
    B $1,500.00
    C $2,250.00
    D $3750.00
    Hi. Could u pls explain for me why when the expenditure are as budgeted but actual and budgeted production activity levels are different, only fixed overhead can be under or over absorbed ?
    thank you so much !

    February 28, 2023 at 6:28 pm #679813
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51874
    • ☆☆☆☆☆

    The question does not say that the total expenditure for variable overheads is as budgeted. It says that it is as expected, and that means that the variable overheads are as expected for the actual level of production (i.e. that the cost per hour is as expected).

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