Compute over and under absorption of variable overhead, Cost Accounting

Compute Over and Under Absorption of Variable and Fixed Overhead

A company has a machine cost center for that the given information is available as

a) Budget

i. Budgeted (expected) activity                                            3000 machine hours

ii. Variable production overhead cost per machine hour      Shs. 2

iii. Fixed production overhead cost net                                Shs. 9000

b) Actual

i. Activity level                                                                      3000 machine hours

ii. Variable production overhead cost incurred                     Shs. 6400

iii. Fixed production overhead cost incurred                          Shs. 8800

Required

1. Compute the over and under absorption of variable overhead and fixed overhead cost

2. Comment on possible reasons of over or beneath absorption figures

Solution

Variable overhead cost

Actual cost incurred                                                    Shs.6400

- Overhead absorbed 3000 hrs x Shs. 2                     Shs.6000

                                                                                   Shs.  400

Below absorption may contain occurred via a combination of        

a) Increased price per unit of variable cost as an example of a rise in price or electricity

b) An increase in the number of units of overhead cost item, as an example of machine efficiency has fallen via lack of maintenance

Fixed overhead cost:

Actual cost incurred                                                   Shs. 8800

- Overhead absorbed 3000 hrs x Shs. 3                    Shs. 9000

Over absorption of overhead cost                             Shs.  200

The fixed overhead absorption rate 9000/3000 machine hours = Shs. 3 per machine hour.

The real activity level of 3000 machine hours is the similar as that budgeted. Therefore the over absorption of fixed overhead is because of expenditure factors. It may have happened as of the combination of

a) A lower price of a fixed item as an example of salary may be lower than budgeted

b) A reduced usage of what was classified as a fixed cost item as an example of the quantity of oil employed to lubricate the machines.

Posted Date: 2/5/2013 7:39:34 AM | Location : United States







Related Discussions:- Compute over and under absorption of variable overhead, Assignment Help, Ask Question on Compute over and under absorption of variable overhead, Get Answer, Expert's Help, Compute over and under absorption of variable overhead Discussions

Write discussion on Compute over and under absorption of variable overhead
Your posts are moderated
Related Questions
Walter manufactures a silicone paste wax that goes through three processing departments: cracking, blending, and packing. All raw materials are introduced at the start of work in t

A CPA firm estimates that an audit will require the following work: Type of Auditor Expected Hours Cost per Hour Standard Costs Manager 10 $50 $ 500 Senior 20 40 800 Staff 40 30


Are non-profit and governments required to depreciate assets? Why or why not? Would it make sense for them to use double declining balance? Is there a difference between a non-p

In Lowe's Companies, Inc. 2012 Annual Report (Form 10-K) 1. Evaluate Lowe's investment in property, plant and equipment. Determine the following amounts as reported by Lowe's on it

The follow data relates ot year 20XX for Plano Manufacturing Company: Units produced - 2,000 Units sold - 1,800 Selling price - $200 / per unit Direct material costs - $80,000 Dire

High Bhd acquired shares in two other companies as follows: Additional information: i) Goodwill on acquisition of Swift was impaired by RM80,000 as

is sale of salvage from capital project recorded as gain/loss or applied back to project costs

Production of a particular product costs $50 per material, $80 per labour and variable overhead is 75% of labour cost. If the selling price per unit is $230 and fixed cost amounts

Are non-profit and governments required to depreciate assets? Why or why not? Would it make sense for them to use double declining balance? Is there a difference between a non-p