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ACCA Applied Knowledge · Management Accounting · Absorption and marginal costing

Harlow Ltd budgets production overheads of $240,000 and 30,000 direct labour hours for the period. Actual overheads were $252,000 and actual direct labour hours were 31,500. Using a direct labour hour absorption rate, what is the overhead absorbed for the period?

Overhead absorbed is $252,000. The predetermined rate is budgeted overheads of $240,000 divided by budgeted 30,000 hours, giving $8 per hour, which is then applied to the 31,500 actual hours worked.

  1. A$240,000
  2. B$252,000Correct
  3. C$256,000
  4. D$263,000

Explanation

Budgeted rate = $240,000 / 30,000 = $8 per direct labour hour. Absorbed = 31,500 x $8 = $252,000. Using budgeted overheads ($240,000) ignores actual hours, while $256,000 or $263,000 come from wrong rate or hours combinations.

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