ACCA MA · Chapter 6 · Question 8 of 11
A company absorbs production overheads on machine hours. Budgeted machine hours were 30,000. Actual overheads were $496,000, actual machine hours were 31,000, and overheads were under-absorbed by $31,000. What were the budgeted production overheads?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $450,000
Explanation
Overheads absorbed = actual overheads - under-absorption = 496,000 - 31,000 = $465,000. OAR = 465,000 / 31,000 actual hours = $15 per machine hour. The OAR was set as budgeted overheads / budgeted hours, so budgeted overheads = 15 x 30,000 = $450,000.
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