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ACCA · Question 16 · Syllabus C: Cost accounting techniques
A robotics assembly plant budgets its annual production overheads at $450,000. The plant is highly automated and uses machine hours to absorb overheads. Budgeted machine hours for the year are 90,000 hours.
During the year, actual overheads were $460,000 and actual machine hours worked were 95,000 hours.
Calculate the predetermined Overhead Absorption Rate (OAR) per machine hour. (Enter number only, no commas or symbols)
A robotics assembly plant budgets its annual production overheads at $450,000. The plant is highly automated and uses machine hours to absorb overheads. Budgeted machine hours for the year are 90,000 hours.
During the year, actual overheads were $460,000 and actual machine hours worked were 95,000 hours.
Calculate the predetermined Overhead Absorption Rate (OAR) per machine hour. (Enter number only, no commas or symbols)
How to approach this question
OAR is always calculated using BUDGETED figures, not actual figures. Divide budgeted overheads by budgeted activity.
Full Answer
The predetermined Overhead Absorption Rate (OAR) is calculated before the period begins using budgeted figures.
OAR = Budgeted Overheads / Budgeted Machine Hours
OAR = $450,000 / 90,000 hours = $5 per machine hour.
(The actual figures are used later to calculate under/over absorption, not the OAR itself).
Common mistakes
Using actual overheads or actual hours to calculate the predetermined rate.
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