ExpertMedium2 marksMultiple Choice
ACCA · Question 20 · C. Cost accounting techniques
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?
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?
Answer options:
A.
$5,000 under-absorbed
B.
$1,000 under-absorbed
C.
$1,000 over-absorbed
D.
$6,000 over-absorbed
How to approach this question
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.
Full Answer
C.$1,000 over-absorbed✓ Correct
1. OAR = Budgeted Overheads / Budgeted Hours = $120,000 / 10,000 = $12 per hour.
2. Absorbed Overheads = Actual Hours * OAR = 10,500 * $12 = $126,000.
3. Actual Overheads = $125,000.
4. Since Absorbed ($126,000) > Actual ($125,000), overheads are over-absorbed by $1,000.
Common mistakes
Comparing actual overheads to budgeted overheads ($5,000 difference) instead of comparing actual to absorbed.
Practice the full ACCA MA — Management Accounting Practice Exam 5
38 questions · hints · full answers · grading
More questions from this exam
Q01A Global Health NGO is analyzing a monthly report detailing the transportation costs of deliverin...EasyQ02A quantum computing startup processes millions of sensor readings per second from its prototypes....MediumQ03An offshore wind farm incurs a maintenance cost that remains constant up to 50 turbine inspection...EasyQ04The manager of a large commercial hydroponic farm has the authority to negotiate selling prices w...MediumQ05A cross-border logistics company wants to survey its drivers regarding a new routing software. Th...Medium