ABC absorbs fixed production overheads in one of its departments on the basis of
ID: 2499451 • 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
option B that overhead was 25000 underabsorbed is correct
Overhead absorbed = Actual hour * absorption rate = 110000 * 2.50 = 275000
Actual overhead = 300000
As overhead absorbed are less than the actual overhead , there is under absorption of overhead for $ 25000 (300000 - 275000)