Example of over and under absorption of production overhead, Cost Accounting

Example of Over and under absorption of production overhead costs

By employing data from diagram assume such the production overhead absorption rate was computed where an activity of two hundred machine hours was estimated. Prepare a summary showing any over or beneath absorption of overhead cost whereas the real machine hours charged to jobs turns out to be as:

a) One hundred fifty hours

b) Two hundred fifty hours

Solution

Absorption rate is Shs. 5.50 per machine hour. It may be analyzed into fixed rate of Shs.2.50 per machine hour and variable rate; of Shs. 3 per machine hour.

a) Where real activity is one hundred fifty hours

 

Fixed

Variable

Total

 

Shs.

Shs.

Shs.

 Overhead incurred

500

450

950

 Variable overhead absorbed             

 

(450)

 

(150 x 3)

 

 

 

 Fixed overhead absorbed

(375)

 

 

 (150 x 2.50)

 

 

 

 Total Overhead absorbed

 

 

(825)

 (150 x 5.50)

____

____

___

 Under absorption of overhead          

125

NIL

125

b)  Where actual activity is two hundred fifty hours

 

Fixed Shs.

Variable Shs.

Total Shs.

 Overhead incurred

500

750

1250

 Variable overhead absorbed

 

(750)

 

 (250 x 3)

 

 

 

 Fixed overhead absorbed

(625)

 

 

 (250 x 2.50)

 

 

 

 Total Overhead absorbed

 

 

(1375)

 (250 x 5.50)

___                           

___

___

 Under absorption of overhead

125

NIL

125

c) The absorption and Expenditure level of production overhead cost

A charge in expenditure on an overhead cost item may happen due to  a charge in the price per unit and/or due to change in the number of units of the overhead commodity that are necessary. Expenditure changes can affect the absorption of both variable and fixed overheads.

Posted Date: 2/5/2013 7:35:39 AM | Location : United States







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

Write discussion on Example of over and under absorption of production overhead
Your posts are moderated
Related Questions
Absorption Costing and Marginal Costing Product costs are costs identified along with goods produced or purchased for resale. That costs are initially identified like part of

Allocation of Service Department Costs Allocation of Service Department Costs to Production departments ,Service departments are those departments that provide support to prod

Students will prepare a Comprehensive Master Budget and Budgeted Financial Statements for Earrings Unlimited for the three-month period ending June 30. This includes: Sales Budg

A bicycle plant runs two assembly lines, A and B. 96.9% of line A's products pass instruction, while only 93.8% of line B's products pass inspection. 70% of the factory's bikes com

Fixed Costs Are costs such do not change along with of the level of output? It is also named as autonomous cost, as it stays the similar irrespective of the activity level as

Constant Gross Margin Rate This method assumes that every product contributes an equal percentage of gross profit for every shilling of sales. It works back from gross margin

Amy earns $35,000 working part time. Consequently, she is not eligible to participate in her employer's retirement plan or health insurance program. Amy's expenses are summarized a

While we are looking for sources funds it is other than natural to start searching from home. What do we have? During examining the requirement for working capital we could also ma

Example B & B Mechanical Repairs is a small, family owned partnership that specialises in the servicing and repair of motor vehicles. The business employs three qualified mecha

Role f marginal costing in management information system