Overhead absorption rate

 

OVERHEAD ABSORPTION RATE

JTM Ltd is looking to calculate the unit cost for one of its products. It needs to calculate an overhead absorption rate to apply to each unit. The methods it is considering are:

·         direct labour hours

·         machine hours

 

The factory activity forecast is as below:

Machine hours	15,000 hrs
Labour hours	21,000 hrs
Overheads	£672,000

 

(i) Complete the table below to show the possible overhead absorption rates that JTM Ltd could use.

	Machine hour	Labour hour
Overheads (£)
Activity
Absorption rate (£)

 

Answer:

	Machine hour	Labour hour
Overheads (£)	672,000	672,000
Activity	15,000 hrs	21,000 hrs
Absorption rate (£)	44.80	32.00