A business absorbs overheads on a machine hour basis, which were budgeted at 12,250 machine hours...

A business absorbs overheads on a machine hour basis, which were budgeted at 12,250 machine hours with overheads of £147,000. Actual results were 9,870 hours with actual overheads of £154,645. Calculate the over or under recovery.

Over recovery of £36,205
Over recovery of £7,645
Under recovery of £7,645
Under recovery of £36,205

A highly automated process is used to make tins of paint. It has a budgeted overhead of £40,000, taking 1,250 machine hours and 500 direct labour hours. Each can of paint uses £12 of direct materials, 0.1 labour hours at £4 per hour and 0.2 machine hours. The most appropriate calculation of the total cost of each tin of paint would be:

£15.60
£28.40
£18.80
£20.40

Expert Solution

Case 1	The correct answer is option (d) i.e. under recovery of $36,205
			Amount $
	Budegeted overhead	a	£ 147,000.00
	Budegeted machine hour	b	12,250.00
	Overhead recovery rate	c=a/b	$ 12.00
	Actual machine hour	d	9,870.00
	Ovehead Recovered	*e=cd**	£ 118,440.00
	Actual overhead incurred	f	£ 154,645.00
	Over/(Under) recovery	g=e-f	-£ 36,205.00

Case 2	The correct answer is option (c) i.e. 18.80
			Amount $
	Direct material	a	$ 12.00
	Direct labour	b	£ 0.40	(0.1 hour*4)
	Overhead	c	£ 6.40	(40000/1250*0.2)
	Total cost of each paint	d	£ 18.80

ekkarill92 answered 2 years ago

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