ABC absorbs fixed production overheads in one of its departments on the basis of
ID: 2456493 • Letter: A
Question
ABC absorbs fixed production overheads in one of its departments on the basis of machine hours. There were 100,000 budgeted machine hours for the forthcoming period. The fixed production overhead absorption rate was £2·50 per machine hour. During the period, the following actual results were recorded: Standard machine hours 110,000 Fixed production overheads $300,000 Which ONE of the following statements is correct? A. Overhead was $25,000 over-absorbed B. Overhead was $25,000 under-absorbed C. Overhead was $50,000 over-absorbed D. No under- or over-absorption occurred
Explanation / Answer
Answer:
Option - B - Overhead was $25,000 under absorbed
Hours Budgeted machine hours of production 100000 Standard machine hours of production 110000 Difference machine hours with unapplied OH 10000 Fixed production overhead absorption rate $ 2.5 per machine hour So the overhead underabsorbed (in $) 25000 (ans)