Over absorption of overheads means that the absorbed overheads were more than

Over absorption of overheads means that the absorbed

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Over absorption of overheads means that the absorbed overheads were more than the actual overhead expenditure incurred. (1) In the machining department indirect wages of $2720 were absorbed into production. This was $700 more than the actual overhead. Over-absorption of overhead occurred. (1) A credit for $700 should be made to the income statement. (1) (Max 3)
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Page 8 Mark Scheme Syllabus Paper Cambridge International AS/A Level – October/November 2015 9706 21 © Cambridge International Examinations 2015 (ii) Overhead under absorption Assembling department under-absorbed. (1) Under-absorption of overheads means that the amount of overheads absorbed into production was less than the amount of actual overheads incurred. (1) In the assembly department the number of direct labour hours worked was less than estimated. Absorption rate from (b) (ii) was $3.10 per direct labour hour. Total overhead to be absorbed was $18 624. Using the actual labour hours worked the overhead absorbed would be 5570 × $3.10 = $17 267 (1) Conclusion – overhead under- absorbed of $1357 – This would be debited to the income statement. (1) (Max 3) NOTE One mark for identifying the correct department One mark for an explanation of over or under absorption One mark for some illustration relating to the figures One mark for the entry required in the income statement. (Max 3 in each part) [6] [Total: 30]
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