Question

The absorption rate for fixed overhead for this year = €8/direct labour hour. The direct labour...

The absorption rate for fixed overhead for this year = €8/direct labour hour.

The direct labour budget for this year is:

- skilled labour €360,000 @ €4/hour

- unskilled labour €180,000 @ €3/hour

Fixed overhead this year is 1/3 more than last year.

What was the budgeted fixed overhead for last year?

€1,020,000
€1,600,000
€540,000
€900,000
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Answer #1

The budgeted fixed overhead for last year = €900,000

Fixed overhead this year is 1/3 more than last year, therefore, last years Fixed overhead rate is €6/direct labour hour (€8/direct labour hour/ 1.3333)

Direct Labour hours – Skilled Labour = €360,000 @ €4/hour = 90,000 Labour Hours

Direct Labour hours – Unskilled Labour = €180,000 @ €3/hour = 60,000 Labour Hours

Total Direct Labour Hours = 90,000 + 60,000 = 150,000 Direct Labour Hours

Therefore, the budgeted fixed overhead for last year

= 150,000 150,000 Direct Labour Hours x €6/direct labour hour

= €900,000

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