MDCL AAT Practise Assessment 1 Q1.8 B

Hi Vickie,

Not sure if you're still awaiting an answer, if so please see below;

The question is about Absorption Costing and states that the overheads are to be allocated on a labour hour basis (could equally be on machine hours or number of units, look out for this in the exam)

You need to multiply the number of units by the number of hours required (Rose 50,000 units x 3 hours / unit = 150,000 hours) and (Thyme 25,000 units x 2 hours / unit = 50,000 hours)

You therefore need to split the total overhead of £1,000,000 (£400,000 Material Handling + £600,000 Production Set-up's) between the total of 200,000 hours required (£1,000,000 / 200,000 hours = £5 / unit)

Therefore Rose will equal £750,000 (150,000 hours x £5.00 / hour) and Thyme will equal £250,000 (50 hours x £5 / hour)

I hope this helps,

Kind regards,

Malcolm.