Unit 6

Primble

Hi, I'm already runing behind on my unit 6 progress tests due to family issues. I am trying to do a progress test but am getting confused on some stuff that i'm not sure about.
1. when working out the overhead recovery rate do you use the total of the cost centre before or after re-apportionment?
2.over/under recovery of overheads (the sum and the t account)
3. what factors can give rise to an under recovery of overheads

thanks!!

SandyHood

1. when working out the overhead recovery rate do you use the total of the cost centre before or after re-apportionment?

AFTER

2.over/under recovery of overheads (the sum and the t account)

1. Using your overhead recovery rate multiply it by the actual hours worked to produce the OVERHEAD ABSORBED
2. Identify the ACTUAL OVERHEAD INCURRED
3. Overhead Absorbed less Actual Overhead Incurred = Amount overabsorbed (if +ve) or under absorbed (if -ve)

........................................................Production Overhead Control Account
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.......................Actual overheads incurred .....................¦..............Overhead Absorbed
..............Over Absorbed Overhead (if any)......................¦..............Under Absorbed Overhead (if any)
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3. what factors can give rise to an under recovery of overheads

From the take away sum which was in your previous answer, we know how to find under recovery.
It is due to the OAR x the Actual Hours worked being less than the Actual Overhead Incurred.

1. May be the actual overheads were a lot more than budgeted. Has the landlord increased the rents or did the maintenance team have to work all weekend (on premium rates) putting right a problem in the factory?
2. Were the hours worked particularly low for some reason. I guess hours worked in April at Grangemouth will be low. When hours are low then there is a lower number to multiply by the OAR to find the overhead absorbed (or recovered)

Primble

thank you so much, just one more cheaky thing, what goes on the t account and where?

SandyHood

This is likely to go beyond the test content but it is important for understanding, and particularly useful where a candidate doesn't work in a business that uses OARs.

Debit the costs as they occur, eg the appropriate share of supervisory wages would be a debit, the appropriate share of rent of premises would be a debit.

Then as the labour time (or machine time) is spent in the department, credit on the basis of hours actually worked x the OAR.
And debit the departmental work in progress account

At the end of the period total the debits, total the credits and find the unde/over amount - which is posted and the double entry appears in the under-/over-absorbed overhead account.