- This topic has 5 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
hello sir
question 22 in mock exam of open tution
what is under /over absorption of fixed overhead?
my answer is
oar=8×3=24overhead absorbed is 24×90000=2160000
actual absorbed is 700000
2160000-700000=14600000 over absorbtion
which is wrong
and what is the use of opening and closing inventory in under and over absorption i really get confused and u explain how to do this question
thanksA Company uses standard absorption costing .its fixed overhead absorption rate is $8 per machine hour and each unit of production should take 3 machine hours
last year there was an opening inventory of finished goods of 4000 units. they produced 30000 units and sold 20000 units.90000 machine hours were used for production and the total fixed overheads were $700000
what was the amount of over and under fixed overheads?my calculation is
overhead absorbed is 24×90000=2160000
actual absorbed is 700000
2160000-700000=14600000 over absorption
which is wrong
and what is the use of opening and closing inventory in under and over absorption and how to use those values, in absorption costing closing inventory is valued at product cost, i really get confused and can u explain how to do this question
thanksYour mistake is that you have multiplied the actual hours (90,000) by the overheads per unit ($24).
You either multiply actual hours by overheads per hour, or you multiple actual units by overheads per unit. In either case you get $720,000 (and not 2160000)!!Opening and closing inventory are not relevant for this question.
Maybe you are confusing with the different between absorption and marginal costing profits – they will be different by the fixed overheads per unit multiplied by the change in the inventory. The change in inventory is either the difference between opening and closing inventories, or the difference between sales units and production units. Either gives the same answer and which you use depends on the information in the question.
hi
thanks i got it , hours should be multiply with hrs and Opening and closing inventory are not relevant for above question. your explantion is clearthanks for help
- You must be logged in to reply to this topic.