CIMA BA2 · Chapter 3 · Question 6 of 8
Budgeted production overheads were $450,000 and budgeted direct labour hours were 60,000. Overheads are absorbed on a labour hour basis. Actual overheads were $472,000 and actual labour hours worked were 61,500. What was the over- or under-absorption of overheads for the period?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $10,750 under-absorbed
Explanation
Overhead absorption rate = $450,000 / 60,000 hours = $7.50 per hour. Overhead absorbed = 61,500 x $7.50 = $461,250. Actual overhead $472,000 exceeds the amount absorbed by $10,750, so overheads are under-absorbed.
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