Online test (number 2) question 1.5

BradleyClaridge

Hi All,

I don't know if this will make a difference but I think the AAT has unnecessarily rounded down on the variable overheads section?
The overheads relate to labour hours

The labour hours including overtime come to
1100 basic
225 overtime

1100 x 15 = 16500
225 x 18 = 4050
In total 20550

The yearly variable overheads is 31,700 / by the yearly direct labour figure 245,700 = 0.1290191 x 20,550 = 2651.3425 which is the figure for variable overheads for the month of June

The AAT have got a figure of 2650? They haven't mentioned in the question to round down any answers? Would I lose a mark if I didn't round down?

Has anybody else had this problem

Many thanks
Bradley

SamGrundy1

Hi,

I believe to get the correct amount for the variable overhead for the month is you will divide the total production amount for the year by the total variable overhead amount for the year. You then divide the production amount for that month by that amount.

I got confused too when i saw that the overhead relates to labour hours but you do not need the labour hours to calculate this. As it is a variable overhead, this means this will change inline with the amount of production. So there will be a fixed cost per unit produced.

E.g. Total production for year = 300,000 units
Total variable production overhead = £50,000

Total production for June-36,000 units
Variable production overhead is X

To get X- 300,000/50,000 = Y (6)
Then divide the monthly production amount by the answer - 36000/Y(6)

Your production overhead for June will then be £6,000.

I hope this helps

Sam