Monday, 22 March 2021

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

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