Absorption Costing

A business uses an overhead absorption rate based on direct labour hours.

The following information is provided for its last year.

Which statement regarding overheads is correct?

• They were over absorbed by $5000.

• They were under absorbed by $5000.

• They were over absorbed by $24 000.

• They were under absorbed by $24 000.

Which cost will fall as production is reduced?

• fixed costs per unit

• total fixed costs

• total variable costs

• variable costs per unit

A manufacturing business has provided the following information.

budgeted labour hours 12 000

budgeted overhead absorption rate $7.50 per labour hour

actual overhead cost $101 250

actual labour hours 15 000

What is the over or under absorption of overheads?

• $11 250 under absorbed

• $11 250 over absorbed

• $20 250 under absorbed

• $20 250 over absorbed

A business has provided the following costing information for its production departments.

What would be a suitable overhead absorption rate for each department?

• machining $ 2.77

  assembly $ 3.42

• machining $ 2.77

  assembly $ 6.84

• machining $ 4.29

  assembly $ 3.42

• machining $ 4.29

  assembly $ 6.84

A company uses a machine hour basis to absorb its overheads.

The following information is provided for its last period.

Which statement regarding overheads is correct?

• They were over absorbed by $23 000.

• They were under absorbed by $23 000.

• They were over absorbed by $51 000.

• They were under absorbed by $51 000.

A business provided the following information about a product.

Budgeted production and sales were 1200 units.

What was the profit made for actual production and sales of 1500 units?

• $2700

• $3960

• $6660

• $9000

The budgeted information for one month is shown.

units sales 20 000

selling price per unit $12

variable cost per unit $3

fixed costs $50 000

It is expected that the number of units sold will increase by 10%.

Fixed costs will increase by 5%.

What is the increase in profit as a result of these changes?

• $15 500

• $18 000

• $20 500

• $21 500

A factory employs a large number of staff who pack different products for different customers.

What would be the most suitable basis to absorb the packing department overheads?

• customer

• labour hours

• machine hours

• product

The following information is available.

Overheads are absorbed on the basis of direct labour hours.

What was the amount of over absorption or under absorption of overheads?

• $4000 over

• $4000 under

• $6000 over

• $6000 under

A business employs machinists to make a single product.

As demand increases more machinists are employed. Every time eight extra machinists are

employed, one extra supervisor is needed.

How are total labour costs best described?

• machinists fixed

  supervisors variable

• machinists semi-fixed

  supervisors variable

• machinists variable

  supervisors fixed

• machinists variable

  supervisors semi-fixed