ACCA Applied Knowledge · Management Accounting · Absorption and marginal costing
Brennan Co absorbs production overheads on a machine hour basis. Budgeted overheads were $360,000 and budgeted machine hours were 45,000. Actual overheads were $372,000 and actual machine hours were 44,000. What was the over- or under-absorption of overhead?
Overhead was under-absorbed by $20,000. The rate of $8 per machine hour multiplied by 44,000 actual hours gives $352,000 absorbed, which is less than the actual overhead incurred of $372,000. Absorbed less actual shows the shortfall.
- A$12,000 under-absorbed
- B$20,000 under-absorbedCorrect
- C$8,000 over-absorbed
- D$20,000 over-absorbed
Explanation
Rate = $360,000 / 45,000 = $8 per hour. Absorbed = 44,000 x $8 = $352,000. Actual cost was $372,000, so $20,000 is under-absorbed. $12,000 wrongly compares actual with budgeted overhead.
Did you get it right without looking?
One question tells you little. A timed set on Absorption and marginal costing shows your real accuracy, how long you take and where you lose marks.
More Absorption and marginal costing questions
- Harlow Ltd budgets fixed production overheads of $240,000 and 30,000 direct labour hours for the period. Actual direct labour hours worked w…
- Delta Ltd produced 10,000 units and sold 8,000 units in a period. Fixed production overhead was $50,000 for the period, budgeted output was …
- Which statement correctly explains why absorption costing and marginal costing profits differ when production and sales volumes differ?
- Kestrel Co sold 6,000 units in a period at $25 per unit. Variable costs were $15 per unit and fixed costs were $42,000. What was the profit …
- Which of the following is the main reason a business would use a direct labour hour absorption rate rather than a rate per unit of output?
- Harlow Ltd budgets production overheads of $240,000 and 30,000 direct labour hours for the period. Actual overheads were $252,000 and actual…