CIMA BA2 · Chapter 3 · Question 5 of 8
A production department is highly automated, and most of its overhead costs relate to running its machines. Which basis is most appropriate for absorbing its overheads into products?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Rate per machine hour
Explanation
Overheads should be absorbed on the basis that best reflects how products consume the department's resources. In a machine-intensive department, overheads are driven mainly by machine time, so a machine hour rate is most appropriate. Floor area is an apportionment basis, not an absorption basis.
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