Budgeted Overhead Absorption Rate

Question 1

Budgeted overhead absorption rate (boar) ?

Answer 1

Method of calculating the full cost of a unit of production.

Question 2

How is boar calculated ?

Answer 2

Budgeted overheads / budgeted activity (the most appropriate.

Question 3

Income statement or statement of financial position ? And how .

Answer 3

DR entry on the income statement as part of costs of sales.

Question 4

What do the cost of sales include ?

Answer 4

Direct materials
\+
Direct labour
\+
Overheads absorbed

Question 5

Under absorption occurs when ?

Answer 5

Overheads incurred are greater than the overheads absorbed.

Eg. If BOAR is £4 per machine hour , and actual machine hours where £7,500 then o/heads absorbed are 7’500 x £4 =’£30,000.

DR to the income statement.

Question 6

Over absorption occurs when ?

Answer 6

Overheads absorbed are greater than actual overheads.

CR to the income statement to reduce the o/heads already posted.