Skip to content

ACCA Applied Knowledge · Management Accounting · Absorption and marginal costing

Brindle Co absorbs production overheads on a machine hour basis. Budgeted overheads were $450,000 for 90,000 machine hours. Actual overheads were $468,000 and actual machine hours were 88,000. What was the over- or under-absorption of overheads?

Overheads were under-absorbed by $28,000. Absorbed overhead is 88,000 actual hours at the $5 budgeted rate, or $440,000, which is less than the actual overhead cost of $468,000 incurred.

  1. AUnder-absorbed by $28,000Correct
  2. BUnder-absorbed by $18,000
  3. COver-absorbed by $18,000
  4. DOver-absorbed by $28,000

Explanation

Rate = $450,000 / 90,000 = $5 per hour. Absorbed = 88,000 x $5 = $440,000. Actual overheads were $468,000, so under-absorbed by $28,000. $18,000 is the difference between actual and budgeted overheads only.

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.

Practise Absorption and marginal costingFree diagnostic mock

More Absorption and marginal costing questions