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A manufactured consultancy recovers overheads on chargeable consulting hours.Budgeted overheads were $615000 and actual consulting hours were 32150. Overheads were under recovered by $35000
if actual overheads were $649075,what was the budgeted overhead absorption rate?Ans
Actual OH 694075
under recoverable OH – 35000
659075absorption rate : 659075/32150 = $20.50
Sir, my question is that why are they using actual overheads and not the budgeted one to find out the absorption rate?
You have not said who ‘they’ are, but if the question is precisely as you have typed it, then ‘they’ are wrong and the correct answer should be (659,075 – 35,000) / 32,150.
However, do check that the wording of the question is exactly as you have typed it 🙂
yes sir, you are right. i typed the answer incorrect. That is the answer. But y the actual overheads and not the budgeted one are used to find the absorption rate?
We are not using the actual overheads (they are 659,075).
The amount absorbed is the actual hours x the standard absorption rate.
Since we know the amount absorbed (659,075 – 35,000) and we know the actual hours (32,150) we can calculate what the standard absorption rate is.
I do suggest that you watch the free lectures – they are a complete course for Paper F2 and cover everything needed to be able to pass the exam well.
but couldn’t we use the budgeted OH 61500 and then divide it with actual hours to find the absorption rate ?
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