Question on Cost and Revenues

Cudey

Hi all, I wondered if someone could please help me on a question - sorry - it is Cost and Revenues again!!

The question is on Practice Assessment 2 on the AAT website.

First on is question 1.5 part C.

I'm not sure how I copy and paste the question, but the answer I keep getting is £3125. My working for this was taking the Actual Overheads of £96,500 and taking away the budgeted overheads of £93,375 to get £3,125. Apparently the answer is £875? I got they were under absorbed, but the figure is really confusing me.

I did have a second one - but I just realized that I got the high-low method round the wrong way :glare:

Hope you're all having a good weekend!

Nps

Hi,

The question is asking you, how much of the overhead did you absorb, compared to the actual overheads incurred.

So, you take the OAR which you calculated in part a, multiply it by the actual number of hours worked and this is how much of the overheads you absorbed. It is this new figure which you compare to the actual overheads.

Remember, the OAR is based on budgeted figures and is simply an attempt to allocate the overheads. If you worked the exact budgeted number of hours, you would cover the exact budgeted overheads. But of course, you don't know the number of hours worked, or the actual overheads incurred until the end of the period, hence you get the over/under absorption. The OAR is set at the start of the year, but the other factors aren't known till the end of the period, as in this case.

Cudey

Apologies for the late reply NPS. I read your reply this morning and it seemed so simple!

I sat the exam this afternoon, and had a very similar question to this, so am truly thankful for your reply.I did very well on the exam and passed - but without your reply I would have panicked.

Thanks again mate, reading over threads on this forum, i'm sure a fair few on here owe you (and others) for your quick replies and knowledge.

Nps

My pleasure. Glad it helped and well done for passing.