Day: July 19, 2023

The table contains information provided by Alex ltd:

• actual direct labour hours worked – 18,000 hours
• actual overhead expenditure – £504,000
• budgeted direct labour hours – 17,000 hours
• budgeted overhead expenditure – £510,000

What is the amount of the overhead over / under recovery?

How is it calculated?

Select ONE answer:

1. £6,000 over-recovered
2. £6,000 under-recovered
3. £30,000 over-recovered
4. £36,000 over-recovered

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – £510,000 / 17,000 = £30 per hour * 1,000 hours + (£510k – £504k) – because direct labour hours worked are higher than budget, there is bound to be an over- recovery of 1000 hours at $30 per hour, and because actual total overhead was less than budgeted, a further recovery of $6000 takes place.

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