សាកលវិទ្យាល័យមេគង្គកេពុជា

CAMBODIAN MEKONG UNIVERSITY

2020 Edition

LECTURE 4
OVERHEADS AND ABSORPTION
COSTING

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 LECTURE OUTLINES
2020 Edition

1. Introduction
2. Absorption Costing
3. Overhead Apportionment
4. Overhead Absorption
5. Over- and Under-Absorption

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 Introduction

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 Practical Examples
1. The production overhead of department D is
absorbed using a machine hour rate. Budgeted
production overheads for the department were
$280,000 and the actual machine hours were 70,000.
Production overheads were under absorbed by
$9,400.
If actual production overheads were $295,000 what
was the overhead absorption rate per machine
hour (to the nearest cent)?

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 Practical Examples
2. The following extract of information is available
concerning the four cost centres of EG Co.
PCC SCC
M F P Canteen
# of direct employees 7 6 2 -
# of indirect employees 3 2 1 4
O/H allocated & apport. $28,500 $18,300 $8,960
$8,400
The O/H cost of the canteen is to be re-apportioned to
the PCC on the basis of the number of employees in
each PCC. After the re-apportionment, what is the
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total O/H of the P department?
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 Practical Example
1. Overheads are absorbed at a pre-determined rate
based on direct labour hours. The following additional
information is available for a period:
Budget $164,000 overhead expenditure
10,000 direct labour hours Actual $158,000
overhead expenditure 9,800 direct labour hours
What was the overhead over-/under-absorption in
the period?

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 End-chapter Practices
1. A vehicle repair company recovers overheads on
the basis of labour hours. Budgeted overheads were
$615,000 and actual labour hours were 48,225.
Overheads were over absorbed by $35,000.
If actual overheads were $640,150, what was the
budgeted overhead absorption rate per hour?

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 End-chapter Practices
2. Actual overheads $496,980
Actual machine hours 16,566
Budgeted overheads $475,200
Based on the data above, and assuming that the
budget overhead absorption rate was $32 per hour,
what were the number of machine hours (to the
nearest hour) budgeted to be worked?

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 End-chapter Practices
3. There the two production cost centres and two service
cost centres in a factory. Production overheads have been
allocated and apportioned to cost centres and now require
re-apportionment from service cost centres to production
cost centres. Relevant details are:
SCC A SCC B
Total overhead $42,000 $57,600
% to Production Cost Centre X 40 55
% to Production Cost Centre Y 60 45
What is the total re-apportionment to Production Cost
Centre Y?

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 End-chapter Practices
4. A product has direct material costs of $7.15 per unit
and direct labour costs of $8.25 per unit. Each unit spends
3 machine hours in the assembly cost centre and 1.5
labour hours in the finishing cost centre. Production
overhead absorption rates are as follows.
Assembly $1.76 per machine hour
Finishing $3.28 per labour hour
What is the full production cost per unit?

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 End-chapter Practices
5. Direct labour hours are used as the basis for overhead
absorption in a production cost centre. The following data
are available for a period:
Actual direct labour hours worked 9,760
Actual overheads incurred $86,920
Overhead under-absorption
$2,496
Budgeted direct labour hours 10,000
What was the overhead absorption rate in the period?

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 End-chapter Practices
6. A factory has two production departments: preparation
and assembly and one canteen for the labor force.
Statistics about the departments are:
Preparation Assembly Canteen
Floor area 400 m2 500 m2
100m2
Machine value $94,000 $80,000
$6,000
Employees 8 6 2
Power consumption 75% 20% 5%
Fixed overhead costs are: rent $45,000, insurance
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$5,400,
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for People costs $12,000, electricity $40,000.
Show how the costs would be apportioned to each
 Thank You for
Your Attention and Participation

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