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Question 3: The production department of Xavier Pharmaceuticals L.L.C supplies you the following data for the...

Question 3:
The production department of Xavier Pharmaceuticals L.L.C supplies you the following data for the year ending 31st December 2019.
Cost of Material used OMR. 27, 000
Direct wages paid OMR 22, 500
Labour hours worked 18, 000
Hours of machine operation 15,000
Overhead cost OMR. 18,000
You are required to ascertain overheads absorption rate by using the following methods:
a) Percentage of Direct material cost
b) Percentage of Direct wages cost
c) Direct labour hour rate
d) Machine hour rate

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Answer #1

Computation of overheads absorption rate using :

a) Percentage of Direct material cost

Overheads Absorption Rate = Overheads Cost / Cost of Material used *100

Therefore, Overheads Absorption Rate = OMR 18,000 / OMR 27,000 * 100 = 66.67% of Material Cost

b) Percentage of Direct wages cost

Overheads Absorption Rate = Overheads Cost / Direct wages paid *100

Therefore, Overheads Absorption Rate = OMR 18,000 / OMR 22,500 * 100 = 80.00% of Direct Wages

c) Direct labour hour rate

Overheads Absorption Rate = Overheads Cost / Total Labour hours worked

Therefore, Overheads Absorption Rate = OMR 18,000 / 18,000 = OMR 1 per labour hour.

d) Machine hour rate

Overheads Absorption Rate = Overheads Cost / Total Machine hours

Therefore, Overheads Absorption Rate = OMR 18,000 / 15,000 = OMR 1.2 per machine hour.

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