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Investor Presentaiton

CAT THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA Measurement Example - Allocation of Overheads The following example illustrates how to allocate overhead cost to inventory at normal capacity. The following is relevant information of entity A. Full capacity Normal capacity Actual labor hours for current period Total fixed production overhead Total variable production overhead 10,000 hours in a year 7,500 hours in a year 6,500 hours 1,500 CU Total opening inventory Total units produced in a year Total units sold in a year Total ending inventory 2,600 CU 2,500 units 6,500 units 6,700 units 2,300 units The total cost of inventories is assigned by using FIFO cost formula. Compute overhead amounts absorbed to ending inventory and recognized as an expense during the year. CAT THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA Measurement Fixed POAR: Total Fixed POH Normal capacity 1,500 CU 7,500 hours in a year 0.20 CU per hour Number of hours taken to produce each unit Actual hours for current period Total units produced in a year 6,500 hours in a year 6,500 units 1.00 hours per unit Total POH recognized absorbed per unit of inventory: - Variable POAR: Total Variable POH Actual hours 2,600 CU 6,500 hours in a year 0.40 CU per hour [0.20 CU per hour x 1 hour p.u.] + [0.40 CU per hour x 1 hour p.u.] 0.60 CU p.u. 10/31/2016 6
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