Using the same data (absorption rate £9 per direct labour hour, actual hours 19,500, actual overheads £184,500), what is the overhead under- or over-absorbed?

Answer and explanation

Correct answer: D. Under-absorbed by £9,000

  1. Step 1: Overhead absorbed = 19,500 × £9 = £175,500.
  2. Step 2: Actual overhead = £184,500.
  3. Step 3: Actual exceeds absorbed by £9,000, so overhead is under-absorbed and the shortfall is charged against profit.
Answer
Under-absorbed by £9,000.
Why not the others: Over-absorbed by £9,000: Absorbed (£175,500) is less than actual (£184,500), so the overhead is under-absorbed. Under-absorbed by £4,500: This is the difference between actual and budgeted overheads and ignores absorbed overheads. Over-absorbed by £4,500: This has the wrong amount as well as the wrong direction.

Practise more Material, labour and overhead costs.

Free questions with an explanation for every one, and full timed ACCA Applied Knowledge (BT, MA, FA) mock tests.

Using the same data… | ACCA Applied Knowledge (BT, MA, FA)