AAT E-Learning

Question 1

Full cost of a product is calculated as?

Answer 1

Direct materials + Direct Labour + Overheads

Question 2

How are overheads (costs which cannot be directly identified with a unit of output) absorbed ?

Answer 2

OHs are absorbed into the product cost on the basis of the Budgeted Overhead Absorption Rate (BOAR)

Question 3

BOAR is calculated how ?

Answer 3

Budgeted Overheads / Budgeted Activity

Question 4

Activity can be measured in terms of … ?

Answer 4

Units produced.
Direct Labour hours.
Machine hours.

Question 5

After calculation BOAR how to proceed?

Answer 5

Use it to calculate ‘overheads absorbed’ during the production period.

Overheads absorbed = Actual activity x BOAR

The Overheads absorbed fig is posted as a Debit entry to the SPL as part of the COS

Question 6

Cost of Sales will include …

Answer 6

Direct Materials + Direct Labour + Overheads absorbed.

Question 7

Under absorption is when …

Answer 7

Actual overheads incurred are greater than overheads absorbed.

May be
Actual activity was lower than budgeted activity.
Actual overhead costs are higher than budgeted.

Question 8

To calculate over/under absorption amount to post to SPL..

Answer 8

BOAR x actual activity = Absorbed overheads.
Compare it to Actual overheads at end of period.
If actual is more then post a Debit to SPL
If actual is lower then post a Credit to SPL