Compute over and under absorption of variable overhead, Cost Accounting

Assignment Help:

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.


Related Discussions:- Compute over and under absorption of variable overhead

Marginal costing and break evan point analysis, what is marginal costing an...

what is marginal costing and explain concept of marginal costing

Retirement account, You want to have $2,000,000 in your retirement account ...

You want to have $2,000,000 in your retirement account (IRA) at the end of 30 years. You hope to earn 6% per year. How much must you save each year?

Manufacturing cost, Use a selected company or your current work environment...

Use a selected company or your current work environment to identify at least one cost or expense that would fit under each of the following categories: • Variable • Fixed • Mixed •

Accounting, What are the basic characteristics of a relevant cost? Why are ...

What are the basic characteristics of a relevant cost? Why are future costs not always relevant? Are all relevant costs found in accounting records?

cost classification, Explain the value attached to this common exercise un...

Explain the value attached to this common exercise undertaken by Accountants.

Calculate the cost of direct material used during the period, A company add...

A company adds overhead costs to jobs at the rate of $8 per direct labor hour. It accumulates overhead costs in a seperate manufacturing overhead account and uses normal costing to

Estimate the selling price and profit, Slash and Burn is a monopolist that ...

Slash and Burn is a monopolist that can sell its output at these prices and with these total costs:                    Output             Price        Total Cost

Purchase procedure, what is the procedure of purchase of materials in large...

what is the procedure of purchase of materials in large organisation?

Calculate the fixed costs to the two products, Herrestad Company does produ...

Herrestad Company does produce and sell two products and the details below will be used to prepare a segmented income statement (showing the income for each product and the total)

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd