Model: Over- or Under-absorption
The budgeted activity and cost data for each half year of XY Ltd were as follows:
|
Direct labour hours |
34,000 |
|
Direct wages |
21,250 |
|
Overhead: |
18,700 |
|
Fixed variable |
32,300 |
During the first six months, the following actual results were achieved:
|
Direct labour hours incurred |
32,500 |
|
Direct wages |
42,750 |
|
Overhead: |
19,350 |
|
Fixed variable |
32,900 |
The existing method of absorbing overhead is by a direct-wage percentage rate. A proposal has been made to change the overhead absorption to a direct labour-hour rate analysed into fixed and variable overhead.
You are required to calculate under the new proposal (i.e., using direct labour-hour rates of absorption) for the first six months period:
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