Isn't it true that you need to know The Amount of the overhead that has been absorbed and the actual amount to ascertain whether an overhead has been under or over absorbed.
In this Acca practice question
A company uses absorption costing with a predetermined hourly fixed overhead rate. The following situations arose last year. Would each of these situations cause overheads to be under absorbed or over absorbed? .
Actual overhead expenditure was less than the budgeted expenditure
Actual hours worked were less than the budgeted hours used to set the predetermined overhead absorption rate
....
The first one is ok, but I'm having problems with the second one. The answer is under absorbed. But we don't know the actual expenditure, so how can we say the overhead is under absorbed.
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Under over absorption
11y ago#1In the second case, the total overheads will be the budgeted hours x the absorption rate.
The amount absorbed will be the actual hours x absorption rate.
Actual hours are less than budgeted hours so the overheads must be under-absorbed.
How did you know that :the total overheads will be the budgeted hours x the absorption rate.??
11y ago#3By definition, fixed overheads do not change with the level of production. Therefore, unless you are specifically told different, the fixed overheads stay the same as budgeted overheads. You are not told different here and so there is nothing else you can assume.
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