Page 192 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes Self Assessment

Fill in the blanks:
1. The ………………… serves as a measure of utilisation of the facilities.

2. The extent of idle capacity is indicated by …………………
3. The direct labour hour rate is obtained by dividing the total overhead of the department for
a particular period by the total number of ………………… of that department for the same
period.
4. ………………… is the cost of running a machine per hour.
5. The rate per unit is obtained by dividing the overheads by the number of …………………
6. ………………… is the cost of running a machine per hour.

7. Under ………………… method, the percentage of factory expenses to material is calculated
on the basis of past records and the factory expenses in the current year.
8. ………………… is computed by dividing the budgeted overhead expenses by the budgeted
base.
9. ………………… is the combination of machine hour rate and direct labour rate.
10. ………………… is the cost of running a machine per hour.

9.4 Under and Over Absorption of Overheads

The absorption of overheads is based on some pre-determined rates. The actual overheads
incurred may or may not be equal to the overheads absorbed.

Did u know? What are pre-determined rates?

predetermined overhead rates are those which are established well in advance before
commencement of production. predetermined overhead rate is computed by dividing the
budgeted overhead expenses by the budgeted base. predetermination of overhead rates is
of practical use in regard to managerial control over costs. On the basis of predetermined
overhead rates, prompt preparation of cost estimate and quotations as well as fixation of
sales prices is possible. Adoption of predetermined overhead absorption rates is practically
useful in organizations following a budgetary control system.
Estimatedfactory overhead forthe budgeted period
= ×100

e
Estimated direct material cos tofproduction
Under Absorption of Overheads

The overheads are under absorbed if the actual overheads incurred are more than the overheads
absorbed.

Did u know? What is actual overhead rate?
Actual overhead rate is determined by dividing the overhead expenses incurred during
the accounting period by the actual quantum of the base selected, such as unit of products,
direct wages, direct material cost, labour hours, or machine hours. The basic principle in

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