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
6View entire presentation