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Suppose that a company plans to produce 1,000 units of product E during August 20X3. The expected
time to produce a unit of E is five hours, and the budgeted fixed overhead is $20,000. The standard
fixed overhead cost per unit of product E will therefore be as follows.
5 hours at $4 per hour = $20 per unit
Actual fixed overhead expenditure in August 20X3 turns out to be $20,450. The labour force manages
to produce 1,100 units of product E in 5,400 hours of work.Hi sir,
I was practicing this question and the workings showed that we need to divide 20,000 / 1000. Is this to calculate OAR? Since its budgeted overhead / planned activity?
Thanks 🙂
Also sir, OAR is only used in fixed o/h and not variable o/. Is this right?
Thanks again 🙂
The OAR is only relevant for fixed production overheads and is always calculated using the budgeted overheads and the budgeted production.
I do explain this in my free lectures. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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