Cutting department data — Budget: Overheads 40,000; Machine hours 2,800; Labour hours 2,600. Actual: Overheads 44,000; Machine hours 2,700; Labour hours 2,900. What OAR would have been used?

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SSC Financial and Cost Accounting P-1 QUESTION #6152

Question 1

Cutting department data — Budget: Overheads $40,000; Machine hours 2,800; Labour hours 2,600. Actual: Overheads $44,000; Machine hours 2,700; Labour hours 2,900. What OAR would have been used?

$14.29 per machine hour
$15.17 per labour hour
$15.38 per labour hour✔️
$16.30 per machine hour

Correct Answer Explanation

Option C ($15.38 per labour hour) is correct.

OAR uses budgeted figures: $40,000 ÷ 2,600 budgeted labour hours = $15.38 per labour hour.

Labour hours are the more appropriate basis as actual labour hours (2,900) exceed actual machine hours (2,700), indicating a labour-intensive department.

More Options