MA1:Management Information: Overheads:

1. C
2. B
3. C
4. B
5. C
6. 25,105
7. C
8. C
9. A
10. F.T
11. A
12. C
13. B
14. D
15. D
16. C
17. A and C
18. A
19. D

20. C
21. D
Overhead Absorption Rate = $50,000/12,500 = $4
Overheads absorbed = Actual Activity × OAR
= 13,600 hours × $4 $54,000
Actual overheads = $60,000
Under absorption $5,600

22. D
Dept X – Machine intensive
OAR = Budgeted Overheads/Budgeted Activity = $100,000/20,000 = $5/machine hour
Dept Y – Labor intensive
OAR = Budgeted Overheads/Budgeted Activity = $120,000/20,000 = $6/labor hour
23. D
$
Rent and rates (apportioned by floor area):
$25,000 × (5,000/12,000) = 10,000
Machine depreciation (apportioned by machine hrs):
$100,000 × (22,500/40,000) = 56,250
Canteen costs (apportioned by no. of employees):
$45,000 × (120/225) = 24,000
 Total costs apportioned to Dept A: 90,250
24. С
Overhead Absorbed: $
Actual labor hours × OAR 20,000
Actual overhead 23,500
Under absorption 3,500

As there is an under-absorption, the overheads absorbed must be less than the actual overheads:
$23,500 − $3,500 = $20,000
Actual labour hours × OAR = $20,000
2,000 × (Budgeted overheads/2,400) = $20,000
Budgeted overheads = ($20,000 × 2,400)/2,000
Budgeted overheads = $24,000
25. В
OAR = $180,000/10,000 = $18/machine hour
26. A
$
Overhead absorbed - $8 × 4,500 36,000
Actual overheads 30,000
Over absorption 6,000

As the company has over absorbed, the actual overheads incurred must be less than the overhead
absorbed: $36,000 − $6,000 = $30,000
27. A
OAR = $247,500/30,000 = $8.25/machine hour
O/H absorbed = 28,000 × $8.25 $231,000
Actual O/H $238,000
Under absorption $7,000
28. $20,000
OAR = Budgeted overheads/2,500
Overhead absorbed = OAR × Actual Activity
If the company has under absorbed, then Actual overheads were more than the overhead absorbed.
So, the overhead absorbed = $19,000 – $3,000 = $16,000.
$16,000 = Budgeted overheads/2,500 × 2,000
Budgeted overheads = $16,000 × 2,000/2,500 = $20,000
29. С
Department A is machine intensive (machine hours >labor hours); department B is labor intensive
(labor hours > machine hours). Therefore, the overhead absorption rates (OAR) for departments A
and B would be expressed in terms of machine hours and labor hours, respectively. This leads us to
the answer—option C.
Note: If machine hours or labor hours are given in the question, OAR is expressed in terms of either
of them and not the number of units produced—because the business may be manufacturing
multiple products, in which case each product unit would not account for the same amount of
overhead.
30. В
Actual machine hours = 12,400 × 102% = 12,648 hours
Overheads absorbed: 12,648 × $4.25 $53,754
Actuals overhead = $56,389
Under absorption $56,389 – $53,754 = $2,635

31. A
OAR = $130,500/9,000 $14.5
Overhead absorbed:
8,800 × $14.50 = $127,600
Actual overhead = $128,480
Under absorption = $128,480 – $127,600 = $880

32. A
OAR = $247,500/30,000 = $8.25
Overhead absorbed:
28,000 × $8.25 = $231,000
Actual Overhead = $238,000
Under-absorption = $238,000 – $231,000 = 7,000

33. B This is allocation of overheads

34. D The insurance cost will be based upon the value of the machinery rather than floor area
Occupied, number of machines or operating hours

35. B overhead absorption rates are predetermined and are therefore based on the budgeted
figures
Overhead absorption rate = $128,000/25,000
= $5.12 per direct labor hour
36. A

Overhead absorption rate = $96,000/25,000 = $3.84 per direct labor hour

Overhead absorbed = $3.84 x 26,000 actual hours
= $99,840
Overhead incurred $108,000
 Under-absorption $8,160
The overhead is under absorbed because less overhead was absorbed than was actually
incurred.
37. B $
Actual expenditure 56,389
Absorbed Cost (12,400 x 1.02 x $4.25 53,754
Total under-absorption 2,635

38. B $25,000 x 1,800/ 5,000 = $9,000

39. D

$
Allocated and apportioned overhead 32,400
Canteen overhead (18,500 x 150/250) 11,100
Stores overhead (8,200 x 104/164 5,200

Total overhead 48,700

40. B
Manufacturing = ω 154,000 = $1.40 per labor hour
110,000
Packaging = ω 89,000 = $1.48 per machine hour
60,000
41. A This is absorption costing absorption costing involves allocating specific overheads and
apportioning any join expenses
42. C Budgeted total overhead ÷ budgeted activity level. Remember that overhead absorption
rates are calculated before the actual figures are knows so they must be “budgeted figures
43. D
OAR = Budgeted overheads = 600,000 = $5 per labor hour
Budgeted labor hours 120,000
Overheads absorbed = 110,000 hours x $5
Overheads absorbed = $550,000
Overheads absorbed – actual overheads = $550,000 - $660,000
= $110,000
Overheads were under absorbed by $110,000
44. C
Absorption rate is used to determine the full cost of a product or service. Answer A describes
overhead allocation and apportionment. Absorption does not control overheads, so answer D is
not Correct

45. B
 $
Actual expenditure 56,389
Absorbed cost (12,400 x 1.02 x $4.25) 53,754
Total under-absorption 2,635
46. A
Under-or-over- absorption is determined by comparing the actual overhead expenditure with
the overhead absorbed
47. B
$
Actual overheads 694,075
Under recovery 35,000
Overheads absorbed 659,075
OAR = $659,075
32,150
= $20.50

48. B
$
Actual overhead 245,600
Over-absorption of overheads 6,400
Overheads absorbed 252,000
Absorption rate = $252,000/45,000 hours =$5.60 per direct labor hour
49. B
Fixed overhead absorption rate = $36,000/18,000 = $2 per direct labor hour
Variable overhead absorption rate = $9,000/18,000 = $0.50 per direct labor hour

$ $
Overheads absorbed:
Fixed (20,000 x $2) 40,000
Variable (20,000 x $0.50) 10,000

Total overhead absorbed

Overheads incurred:
Fixed 39,000
Variable 12,000
Total overhead incurred 51,000
Under-absorbed overhead 1,000
50. A
The overhead absorption rate is based on budgeted figures:
$258,750 = $23 per hour
11,250
51. С
Repeated Distribution method:
Algebraic method:
Let x = total costs apportioned to Stores after re-apportionment of Maintenance
Let у = total costs apportioned to Maintenance after re-apportionment of Stores
x = $6,300 + 0.05y
у = $8,450 + 0.1x
Solving the simultaneous equation:
x = $6,300 + 0.05 ($8,450 + 0.1x)
x = $6,300 + $422.50 + 0.005x
x – 0.005x = $6,722.50
0.995x = $6,722.50
x = $6,756.28
у = $8,450 + 0.1 ($6,756.28)
у = $9,125.63
Total costs after reapportionment to Department I:
$17,500 + $6,756.28 × 60% + $9,125.63 × 75% = $28,398
52. D
Repeated distribution method:
P X Y
Costs allocated/apportioned 95,000 46,000 30,000
Stores usage 40% - 20%
Maintenance usage 30% 10% -
Reapportion X 18,400 -46,000 9,200
Costs after reapportioning X 113,400 0 39,200
Reapportion Y 11,760 3,920 -39,200
Costs after reapportioning Y 125,160 3,920 0
Reapportion X 1,568 -3,920 784
Costs after reapportioning X 126,728 0 784

Without completing the reapportionment from X and Y, the correct answer must be D. Solutions А,
В and С are too low.
Algebraic method:
Let x = total costs apportioned to X after re-apportionment of Y
Let у = total costs apportioned to Y after re-apportionment of X
x = $46,000 + 0.1у
у = $30,000 + 0.2x
Solving the simultaneous equation:
x = $46,000 + 0.1 ($30,000 + 0.2x)
x = $46,000 + $3,000 + 0.02x
x – 0.02x = $49,000
0.98x = $49,000
x = $50,000
у = $30,000 + 0.2($50,000) = $40,000
Total costs apportioned to Department P:
$95,000 + $50,000 × 40% + $40,000 × 30% = $127,000
53. С
Note that Departments A and С are excluded from the solution calculation as they are not required
to be calculated in the question.
Repeated Distribution Method:
B X Y
$ $ $
Initial Costs 18,500 15,000 16,500
Reapportion X 15,000 × 30% (15,000) 15,000 × 10%
4,500 1,500
Sub total 23,000 0 18,000
Reapportion Y 18,000 × 20% 18,000 × 15% (18,000)
3,600 2,700
Sub total 26,600 2,700 0
Reapportion X 2,700 × 30% (2,700) 2,700 × 10%
810 270
Subtotal 27,140 0 270

The correct answer must be С as:

Answers A and В are too low.
Answer D is too high – there is only $270 left to reapportion from dept Y.
Algebraic method:
x = total costs for Department X after the reapportionment of Department Y
у = total costs for Department Y after the reapportionment of Department X
x = 15,000 + 0.15y
y = 16,500 + 0.1x
x = 15,000 + 0.15(16,500 + 0.1x)
x = 15,000 + 2,475 + 0.015x
х – 0.015х = 17,475
0.985x = 17,475
x = 17,475/0.985 = $17,741
y = 16,500 + 0.1(17,741)
y = 18,274.1
Total costs for department В
= $18,500 + $17,741 × 30% + $18,274.1 × 20% = $27,477