ICAEW BIP · Chapter 2 · Question 1 of 12
Rawlings Ltd absorbs production overheads on a machine hour basis. Budgeted overheads were £486,000 and budgeted machine hours were 54,000. Actual overheads were £503,700 and actual machine hours were 55,800. What was the under- or over-absorption of overheads?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) £1,500 under-absorbed
Explanation
Overhead absorption rate = £486,000 / 54,000 = £9.00 per machine hour. Overheads absorbed = 55,800 x £9.00 = £502,200. Actual overheads of £503,700 exceed the amount absorbed by £1,500, so overheads are under-absorbed.
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