Question 1

A logistics company budgeted its fixed warehouse overheads at $120,000 for the year, based on a budgeted capacity of 10,000 labor hours.

At the end of the year, actual fixed warehouse overheads were $125,000 and actual labor hours worked were 10,500.

What is the under- or over-absorption of overheads for the year?

Accepted Answer

1. Calculate the Overhead Absorption Rate (OAR) = Budgeted OH / Budgeted Hours. 2. Calculate Absorbed OH = Actual Hours * OAR. 3. Compare Absorbed OH to Actual OH.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Comparing actual overheads to budgeted overheads ($5,000 difference) instead of comparing actual to absorbed.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 5

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