ACCA MA · Chapter 6 · Question 5 of 11
A department's budgeted overheads are $360,000. Budgeted activity is 24,000 direct labour hours and 12,000 machine hours. Work in the department is mainly done by hand. What is the most appropriate overhead absorption rate?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $15 per direct labour hour
Explanation
In a labour-intensive department, overheads are best absorbed on direct labour hours: 360,000 / 24,000 = $15 per labour hour. A machine hour rate ($30) would suit a machine-intensive department.
More Accounting for overheads MCQs
- Q7Which of the following would cause production overheads to be under-absorbed?
- Q8A company absorbs production overheads on machine hours. Budgeted machine hours were 30,000. Actual overheads were $496,000, actual…
- Q9At the end of a period, production overheads have been under-absorbed. How is the under-absorption accounted for?
- Q10Why are separate departmental overhead absorption rates usually preferred to a single factory-wide (blanket) rate?
- Q11A job uses 12 machine hours in Department X, which absorbs overheads at $22 per machine hour, and 30 direct labour hours in Department Y…