Accountancy Forum

I got this question on a paper to practice for my exam. I am having a bit of trouble on it, I think I have cracked out how to work out part A, but the other parts I don't have a clue. I'm a bit of a novice at accounting so this may seem very easy for you, but for me its hard. Any help here would be appreciated as I am struggling no end.

Thanks a lot.


For Week 1, the budgeted labour hours for normal activity are 3,000 hours. The budgeted fixed cost is £15,000. The fixed overhead cost rate is calculated on the basis of budgeted cost and budgeted normal activity. At the end of the week it is found that only 2,500 hours were worked in practice, with actual fixed costs being as expected.


What is the budgeted fixed overhead rate per labour hour?

For this one, I got £5, I assume you simply just do 15,000/3,000 because they budgeted for that rate? You don't divide by the 2,500 instead do you?


<b>For these next two questions I really have no idea of how to work them out so any help here would be appreciated</b>

What is the amount of fixed overhead applied to jobs in Week 1?

What is the amount of overhead over- or under-applied in Week 1?

u have computed the correct rate, then apply it to actual production i.e 2500, the answer will be 12500, this 12500 we called as budgeted allowance for actual output

over /under applied = actual - applied ;
here actual = 15000, and applied = 12500 , so there will be 2500 under applied variance

The absorption rate is 5 as you said. First we will abrobe 5*2500=12500 to job. absorbed fixed cost is lower then bughted that is why it is under applied foh case. as you know fixed cost does not change with the change in production. we will adjust the extra amount by variance analysis. 15000-12500=2500 will be charged to production.