WEEK V CASE STUDY. Accounting, Finance, SPSS Essay

Week V Case Study
Student’s Name
Institutional Affiliation
Answer 1
IPX allocates overheads based on machine hours, the budgeted or projected machine hours were 20,000 machine hours at $120 per machine hour and fixed overhead were assumed to be $6 million (Zimmerman, 2014).

Budgeted Hrs.

Amount

Machine Hours ($120 per hr.)

20,000

$ 2,400,000

FC

-

$ 6,000,000

Total Costs


$ 8,400,000

Overhead Rate per hour (8,400,000/20,000)

$ 420

In absorption costing, all manufacturing costs, including both variable and fixed costs in total activity while fixed cost does not change with the activity level. Overhead is not treated as a purely fixed cost but rather as a mixture of fixed and variable costs. An essential function of that process is estimating the budgeted overhead rate. It occurs before the beginning of the year. Hence, the budgeted overhead rate is prospective. The budgeted amounts and rates are decided by the management, and values are decided at the beginning of the year. Therefore, the projected overhead rate was $420.
Answer 2
The under/over absorption amount is calculated by comparing actual overhead incurred with the amount absorbed. If actual over...