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VARIABLE AND ABSORPTION COSTING
Steps To Allocate Fixed Overhead To Cost Of Production
At beginning of period: Units, machine
hours, labour
Allocation rate = Budgeted overhead/ Normal capacity hours, etc.
= 200 000 / 20 000 units
= R10 per unit
During period:
Absorbed overhead = Allocation rate x actual production
= R10 x 21 000 units
= R210 000
End of period:
Expenditure variance = Actual overhead – Budgeted overhead
= R231 000 – R200 000
= R31 000 unfavourable
Over/under recovery = Budgeted overhead – Absorbed overhead
(volume variance) = R200 000 – RR210 000
= R10 000 over recovery (favourable)
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