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# Revised OAR- Sandy please help

ryannnnnnnnnnnnn
New MemberRegistered Posts:

**13**
Hi,

Can someone please remind me of how to work out the revised OAR and give a example.

Thanks in advance

Can someone please remind me of how to work out the revised OAR and give a example.

Thanks in advance

0

## Comments

207you take your "standard Fixed OH total cost" and divide it by your "standard Machine or labour Hrs".

Example.. Fixed cost £100,000 - Labour Hrs 5000 Hrs

OAR = (100,000/5000 = ) £20 per Hr (Abs Rate )

when you multiply £20 OAR by your Actual Hrs, then subtract your Actual Fixed OH Total cost you will arrive at your Under/Over absorption of fixed OH.

Is this what you are asking? apologies if not!

Thanks

2,034My overheads blog has an example of overhead rates being calculated

If you look at the department totals in the way sammy described:

Moulding £16,800

Glazing £21,600

And then consider that you would like to know the overhead absorption rates if

This will give us overhead absorption rates of:

Moulding £6.00 per machine hour

Glazing £7.20 per labour hour

[email protected]

www.sandyhood.com

2,034The question is testing that you understand knowledge and understanding criterion

10 Arbitrary nature of overhead apportionmentsHopefully, you will show that changing the basis of the rate does not necessarily mean you have a better rate.

I would stick to the premis that a labour intensive departrment should absorb using labour hours and a capital intensive department should use machine hours.

If the department is consistently over or under absorbing overheads it is not likely that the choice of labour or machine hours would solve it.

The solution may well be better budgeting of costs and hours, or even a more accurate posting of actual costs!!

[email protected]

www.sandyhood.com