Page 152 - F2 - MA Integrated Workbook STUDENT 2018-19
P. 152
Chapter 7
4.3 Applying the overhead absorption rate
Example 6
For every machine hour a unit uses in production cost centre 1 it will pick up
$5.44 and for every labour hour a unit uses in production cost centre 2, it will
pick up $10.30.
Consider the following data for product XX:
Prod cost centre 1 Prod cost centre 2
Labour hours per unit 5 3
Machine hours per unit 2 4
The overhead one unit of product XX will pick up is:
Production cost centre 1: 2 machine hours × $5.44 = $10.88
Production cost centre 2: 3 labour hours × $10.30 = $30.90
Remember: this is the overhead, or indirect cost, to be picked up by
each unit of XX. To find the total cost of a unit of XX the direct costs
must be added on.
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