MA1 Managing Information

Overhead cost

Class practice question

1Budgeted labour hours 8,500

Budgeted overheads $148,750
Actual labour hours 7,928
Actual overheads $146,200

Based on the data given above, what is the labour hour overhead absorption rate?

A $17.20 per hour

B $17.50 per hour
C $18.44 per hour
D $18.76 per hour

2 Canberra has established the following information regarding fixed overheads for the coming
month:

Budgeted information:

Fixed overheads £180,000

Labour hours 3,000 hours
Machine hours 10,000 hours
Units of production 5,000 units

Actual fixed costs for the last month were £160,000.

Canberra produces many different products using highly automated manufacturing processes and absorbs
overheads on the most appropriate basis.

What will be the pre-determined overhead absorption rate?

A £16
B £18
C £36
D £60

3 Which of the following statements about overhead absorption rates are true?

(i) They are predetermined in advance for each period

(ii) They are used to charge overheads to products
(iii) They are based on actual data for each period
(iv) They are used to control overhead costs

A (i) and (ii) only

B (i), (ii) and (iv) only
C (ii), (iii) and (iv) only
D (iii) and (iv) only

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4 Factory overheads can be absorbed by which of the following methods?

(i) Direct labour hours

(ii) Machine hours
(iii) As a percentage of prime cost
(iv) $x per unit

A (i), (ii), (iii) and (iv)

B (i) and (ii) only
C (i), (ii) and (iii) only
D (ii), (iii) and (iv) only

5 A company uses an overhead absorption rate of £3·50 per machine hour, based on 32,000 budgeted
machine hours for the period. During the same period the actual total overhead expenditure amounted to
£108,875 and 30,000 machine hours were recorded on actual production.

By how much was the total overhead under or over absorbed for the period?

A Under absorbed by £3,875

B Under absorbed by £7,000
C Over absorbed by £3,875
D Over absorbed by £7,000

6 Over-absorbed overheads occur when

A absorbed overheads exceed actual overheads

B absorbed overheads exceed budgeted overheads
C actual overheads exceed budgeted overheads
D budgeted overheads exceed absorbed overheads

7 A company has over absorbed fixed production overheads for the period by £6,000. The fixed production
overhead absorption rate was £8 per unit and is based on the normal level of activity of 5,000 units. Actual
production was4,500 units.

What was the actual fixed production overheads incurred for the period?

A £30,000
B £36,000
C £40,000
D £42,000

8 A company absorbs overheads on machine hours which were budgeted at 11,250 with overheads
of$258,750. Actual results were 10,980 hours with overheads of $254,692. Overheads were

A under absorbed by $2,152

B over absorbed by $4,058
C under absorbed by $4,058
D over absorbed by $2,152

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9 Edison has the following data relating to overheads.

Budget Actual
Fixed overheads $15,000 $14,000
Direct labour hours 20,000 19,500

Overheads are absorbed on the basis of labour hours.

Which of the following statements is true?

A Overheads will be under absorbed by $1,000 due to the lower than expected expenditure.
B Overheads will be under absorbed by $1,000 due to the unexpected decrease in labour hours.
C Overheads will be under absorbed by $625 due to lower than expected expenditure and lower
than expected labour hours
D Overheads will be over absorbed by $625 due to lower than expected expenditure offset by lower than
expected labour hours.

10 A company absorbs overheads on the basis of machine hours. In a period, actual machine hours were
22,435, actual overheads were $496,500 and there was over absorption of $64,375.

The budgeted overhead absorption rate was $ per machine hour (to the nearest $).

11 A method of dealing with overheads involves spreading common costs over cost centres on the
basis of benefit received. This is known as

A overhead absorption
B overhead apportionment
C overhead allocation
D overhead analysis

12 Which of the following is correct when considering the allocation, apportionment and
reapportionment of overheads in an absorption costing situation?

A Only production related costs should be considered.

B Allocation is the situation where part of an overhead is assigned to a cost centre.
C Costs may only be reapportioned from production centres to service centres.
D Any overheads assigned to a single department should be ignored

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