Question Tag: Overhead Absorption

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  • 15 Marks

MI – Nov 2021 – L1 – SB – Q1a – Costing Methods

Calculate overhead absorption rate per unit based on labour hours.

ABCD is into manufacturing of two products, AB and CD, using similar equipment and methods. The following data were collected from the company’s record:

Calculate the overheads to be absorbed per unit of each product based on
i. Conventional absorption costing using predetermined labour hour
absorption rate. (6 Marks)
ii. An ABC approach using suitable cost drivers. (9 Marks)

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  • 1 Marks

MI – Nov 2022 – L1 – SA – Q6 – Costing Methods

Identification of methods for overhead cost absorption

Which of the following is NOT a method of overhead cost absorption?
A. Percentage of direct material cost
B. Machine hour rate
C. Labour hour rate
D. Percentage of direct labour cost
E. Repeated distribution method

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  • 1 Marks

MI – Nov 2023 – L1 – SA – Q3 – Costing Techniques

Identifying the term used when actual overhead is less than the absorbed overhead.

When the actual overhead is less than the absorbed, there is:
A. Equal absorption
B. Major absorption
C. Under absorption
D. No absorption
E. Over absorption

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  • 1 Marks

MI – May 2023 – L1 – SA – Q8 – Costing Methods

This question asks for the basis on which factory overhead can be absorbed.

Factory overhead can be absorbed on the basis of:
A. Percentage of material cost
B. Service cost
C. Manufacturing cost
D. Direct expenses
E. Depreciation

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  • 1 Marks

MI – May 2017 – L1 – SA – Q9 – Costing Techniques

Determine when overhead is under-absorbed.

Overhead is under-absorbed when:
A. Budgeted cost exceeds actual costs
B. Budgeted cost equals actual costs
C. Budgeted cost is less than standard cost
D. Actual cost exceeds budgeted cost
E. Actual cost is more than the variance achieved

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  • 15 Marks

MA – Aug 2022 – L2 – Q2a – Activity-based costing

This question asks for the calculation of activity rates and the cost per unit of product X using activity-based costing.

The details of unit cost of products X, Y, and Z have been provided below:

Product X Y Z
Demand (units) 1,200 2,800 3,000
GH¢ GH¢ GH¢ GH¢
Direct Material 70 55 40
Direct Labour 65 60 38
Variable Overheads 11 8 7
Fixed Overhead 32 24 20

Additional information:

  • The fixed overheads were absorbed at the rate of GH¢8 per machine hour.
  • The budgeted fixed overheads of GH¢165,600 can be analysed into the following cost pools with their respective percentages for apportionment:
    Cost Pool Percentages (%)
    Batch 20
    Machinery 45
    Customer service 25
    Deliveries 10
  • The following also relates to the activities of the company:
Product X Y Z
Units in a batch 120 140 200
Quantities per delivery 100 280 250
Number of customers 50 180 220

Required:
i) Calculate the activity rates per batch, machine hour, customer service, and delivery.
(12 marks)

ii) Calculate the total cost of a unit of product X.
(3 marks)

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  • 10 Marks

MA – May 2018 – L2 – Q3c – Activity-Based Costing

Calculate the total overhead absorbed per unit using Activity-Based Costing and identify three types of cost controls.

Dunning Limited has recently introduced an Activity Based Costing System and has
provided the following details for the month of January:

During the month, 500 units of Product Y were produced. This production run required
100 parts and 150 maintenance hours; 5 material requisitions were made and 10
employees worked on the units.
Required:
i) Using Activity Based Costing, calculate the total amount of overhead absorbed by each
unit of Product Y. (7 marks)
ii) Identify THREE different types of controls and explain how activity based costing assists
in the control of costs?

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  • 2 Marks

MA – May 2018 – L2 – Q3b – Activity-Based Costing

Identify three disadvantages of a standard costing system.

Identify THREE disadvantages of a standard costing system.

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  • 15 Marks

MA – May 2019 – L2 – Q3a – Relevant cost and revenue

Discuss blanket overhead rate and prepare an overhead analysis sheet, including re-apportionment of service department costs.

Bobich Ltd manufactures plastic containers for the pharmaceutical industry. The factory, in which the company undertakes all its production, has two production departments, namely: Cutting and Shaping, and two service departments, namely: Stores and Maintenance.

The information below was extracted from the company’s budget for its financial year ended 31 March 2019:

Allocated Overhead Costs GH¢
Cutting Department (Cutting) 14,000
Shaping Department (Shaping) 16,000
Stores Department (Stores) 3,500
Maintenance Department (Maintenance) 2,800
Other Production Overheads GH¢
Factory rent 525,000
Factory building insurance 70,000
Plant & machinery insurance 39,000
Plant & machinery depreciation 58,500
Canteen subsidy 150,000
Direct Costs GH¢
Cutting Department 144,000
Shaping Department 210,000

The following additional information is also provided:

Cutting Shaping Stores Maintenance
Floor area (square meters) 18,000 12,000 3,000 2,000
Value of Plant & Machinery (GH¢) 300,000 50,000 25,000 15,000
Number of stores requisitions 1,000 500 – –
Maintenance hours required 2,700 2,000 300 –
Number of employees 34 60 4 2
Machine hours 12,000 2,200 – –
Labour hours 9,000 15,000 – –

Required:
i) Explain what is meant by the term “blanket overhead rate.” (2 marks)
ii) Prepare an overhead analysis sheet based on the above information. You must clearly state the basis used for any apportionments. (7 marks)
iii) Re-apportion the service department costs and calculate the most appropriate overhead rate for each department. (Rate should be calculated to two decimal places). (3 marks)
iv) State THREE (3) reasons why companies calculate pre-determined overhead absorption rates. (3 marks)

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  • 15 Marks

MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

Bosco Ltd makes and sells one product. Currently, it uses absorption costing to measure profits and inventory values. The budgeted production cost per unit is as follows:

Item Cost (GH¢)
Direct labour (3 hours at GH¢6 per hour) 18
Direct materials (4 kilograms at GH¢7 per kilo) 28
Production Overhead (Fixed cost) 20
Total Cost per Unit 66

Normal output volume is 16,000 units per year, and this volume is used to establish the fixed overhead absorption rate for each year. Costs relating to sales, distribution, and administration are:

  • Variable: 20% of sales value
  • Fixed: GH¢180,000 per year

There were no units of finished goods inventory on 1st October 2015. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is GH¢140. For the two six-monthly periods detailed below, the number of units to be produced and sold are budgeted as follows:

Period Production (units) Sales (units)
Six months ending 31st March 2016 8,500 7,000
Six months ending 30th September 2016 7,000 8,000

The entity is considering whether to abandon absorption costing and use marginal costing instead for profit reporting and inventory valuation.

Required:

i) Calculate the budgeted fixed production overhead costs for each of the six-monthly periods. (3 marks)

ii) Prepare profit statements for management using:

  • Marginal costing
  • Absorption costing

(9 marks)

iii) Prepare an explanatory statement reconciling the profits under marginal costing with those of absorption costing.

(3 marks)

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  • 15 Marks

MI – Nov 2021 – L1 – SB – Q1a – Costing Methods

Calculate overhead absorption rate per unit based on labour hours.

ABCD is into manufacturing of two products, AB and CD, using similar equipment and methods. The following data were collected from the company’s record:

Calculate the overheads to be absorbed per unit of each product based on
i. Conventional absorption costing using predetermined labour hour
absorption rate. (6 Marks)
ii. An ABC approach using suitable cost drivers. (9 Marks)

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  • 1 Marks

MI – Nov 2022 – L1 – SA – Q6 – Costing Methods

Identification of methods for overhead cost absorption

Which of the following is NOT a method of overhead cost absorption?
A. Percentage of direct material cost
B. Machine hour rate
C. Labour hour rate
D. Percentage of direct labour cost
E. Repeated distribution method

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  • 1 Marks

MI – Nov 2023 – L1 – SA – Q3 – Costing Techniques

Identifying the term used when actual overhead is less than the absorbed overhead.

When the actual overhead is less than the absorbed, there is:
A. Equal absorption
B. Major absorption
C. Under absorption
D. No absorption
E. Over absorption

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  • 1 Marks

MI – May 2023 – L1 – SA – Q8 – Costing Methods

This question asks for the basis on which factory overhead can be absorbed.

Factory overhead can be absorbed on the basis of:
A. Percentage of material cost
B. Service cost
C. Manufacturing cost
D. Direct expenses
E. Depreciation

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  • 1 Marks

MI – May 2017 – L1 – SA – Q9 – Costing Techniques

Determine when overhead is under-absorbed.

Overhead is under-absorbed when:
A. Budgeted cost exceeds actual costs
B. Budgeted cost equals actual costs
C. Budgeted cost is less than standard cost
D. Actual cost exceeds budgeted cost
E. Actual cost is more than the variance achieved

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  • 15 Marks

MA – Aug 2022 – L2 – Q2a – Activity-based costing

This question asks for the calculation of activity rates and the cost per unit of product X using activity-based costing.

The details of unit cost of products X, Y, and Z have been provided below:

Product X Y Z
Demand (units) 1,200 2,800 3,000
GH¢ GH¢ GH¢ GH¢
Direct Material 70 55 40
Direct Labour 65 60 38
Variable Overheads 11 8 7
Fixed Overhead 32 24 20

Additional information:

  • The fixed overheads were absorbed at the rate of GH¢8 per machine hour.
  • The budgeted fixed overheads of GH¢165,600 can be analysed into the following cost pools with their respective percentages for apportionment:
    Cost Pool Percentages (%)
    Batch 20
    Machinery 45
    Customer service 25
    Deliveries 10
  • The following also relates to the activities of the company:
Product X Y Z
Units in a batch 120 140 200
Quantities per delivery 100 280 250
Number of customers 50 180 220

Required:
i) Calculate the activity rates per batch, machine hour, customer service, and delivery.
(12 marks)

ii) Calculate the total cost of a unit of product X.
(3 marks)

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  • 10 Marks

MA – May 2018 – L2 – Q3c – Activity-Based Costing

Calculate the total overhead absorbed per unit using Activity-Based Costing and identify three types of cost controls.

Dunning Limited has recently introduced an Activity Based Costing System and has
provided the following details for the month of January:

During the month, 500 units of Product Y were produced. This production run required
100 parts and 150 maintenance hours; 5 material requisitions were made and 10
employees worked on the units.
Required:
i) Using Activity Based Costing, calculate the total amount of overhead absorbed by each
unit of Product Y. (7 marks)
ii) Identify THREE different types of controls and explain how activity based costing assists
in the control of costs?

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  • 2 Marks

MA – May 2018 – L2 – Q3b – Activity-Based Costing

Identify three disadvantages of a standard costing system.

Identify THREE disadvantages of a standard costing system.

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  • 15 Marks

MA – May 2019 – L2 – Q3a – Relevant cost and revenue

Discuss blanket overhead rate and prepare an overhead analysis sheet, including re-apportionment of service department costs.

Bobich Ltd manufactures plastic containers for the pharmaceutical industry. The factory, in which the company undertakes all its production, has two production departments, namely: Cutting and Shaping, and two service departments, namely: Stores and Maintenance.

The information below was extracted from the company’s budget for its financial year ended 31 March 2019:

Allocated Overhead Costs GH¢
Cutting Department (Cutting) 14,000
Shaping Department (Shaping) 16,000
Stores Department (Stores) 3,500
Maintenance Department (Maintenance) 2,800
Other Production Overheads GH¢
Factory rent 525,000
Factory building insurance 70,000
Plant & machinery insurance 39,000
Plant & machinery depreciation 58,500
Canteen subsidy 150,000
Direct Costs GH¢
Cutting Department 144,000
Shaping Department 210,000

The following additional information is also provided:

Cutting Shaping Stores Maintenance
Floor area (square meters) 18,000 12,000 3,000 2,000
Value of Plant & Machinery (GH¢) 300,000 50,000 25,000 15,000
Number of stores requisitions 1,000 500 – –
Maintenance hours required 2,700 2,000 300 –
Number of employees 34 60 4 2
Machine hours 12,000 2,200 – –
Labour hours 9,000 15,000 – –

Required:
i) Explain what is meant by the term “blanket overhead rate.” (2 marks)
ii) Prepare an overhead analysis sheet based on the above information. You must clearly state the basis used for any apportionments. (7 marks)
iii) Re-apportion the service department costs and calculate the most appropriate overhead rate for each department. (Rate should be calculated to two decimal places). (3 marks)
iv) State THREE (3) reasons why companies calculate pre-determined overhead absorption rates. (3 marks)

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  • 15 Marks

MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

Bosco Ltd makes and sells one product. Currently, it uses absorption costing to measure profits and inventory values. The budgeted production cost per unit is as follows:

Item Cost (GH¢)
Direct labour (3 hours at GH¢6 per hour) 18
Direct materials (4 kilograms at GH¢7 per kilo) 28
Production Overhead (Fixed cost) 20
Total Cost per Unit 66

Normal output volume is 16,000 units per year, and this volume is used to establish the fixed overhead absorption rate for each year. Costs relating to sales, distribution, and administration are:

  • Variable: 20% of sales value
  • Fixed: GH¢180,000 per year

There were no units of finished goods inventory on 1st October 2015. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is GH¢140. For the two six-monthly periods detailed below, the number of units to be produced and sold are budgeted as follows:

Period Production (units) Sales (units)
Six months ending 31st March 2016 8,500 7,000
Six months ending 30th September 2016 7,000 8,000

The entity is considering whether to abandon absorption costing and use marginal costing instead for profit reporting and inventory valuation.

Required:

i) Calculate the budgeted fixed production overhead costs for each of the six-monthly periods. (3 marks)

ii) Prepare profit statements for management using:

  • Marginal costing
  • Absorption costing

(9 marks)

iii) Prepare an explanatory statement reconciling the profits under marginal costing with those of absorption costing.

(3 marks)

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