ACCA Applied Knowledge · Management Accounting · Absorption and marginal costing
Dunmore Ltd budgeted fixed production overheads of $360,000 and 45,000 units of output, absorbing on a per unit basis. Actual output was 48,000 units and actual fixed overheads were $372,000. Which statement is correct?
Overheads were over-absorbed by $12,000. The rate is $8 per unit, so 48,000 units absorb $384,000, which exceeds the actual fixed overheads of $372,000 by $12,000. Absorbed overhead greater than actual means over-absorption.
- AOverheads were under-absorbed by $12,000
- BOverheads were over-absorbed by $12,000Correct
- COverheads were over-absorbed by $24,000
- DOverheads were under-absorbed by $24,000
Explanation
Rate = 360,000/45,000 = $8 per unit. Absorbed = 48,000 x 8 = $384,000. Actual = $372,000, so over-absorbed by $12,000. The $24,000 figure results from using budgeted overheads minus absorbed, which ignores that actual spending differed.
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