CASSIOP• Step1: Need to calculate the OAR-it will

enable you to find over/under absorption. Also known as volume variance.

• Definition: Over absorption: This occurs when

budgeted fixed over heads are less than the budgeted amount[some sort of a shortage]

Suppose that we have budgted fixed overheads of 30000 and an activity level based on hours of production of 1500. Then OAR=Budgeted fixed overheads/budgeted activty=20units/labour hr.

Now if the actual fixed overheads are now 25000 at the same activity of 1500 then OAR=16.67

AC vs MC

• AC• Ac is not suited to

decision making making because of the subjective judgements it makes.

• It can be said that the principal aim of Ac is not to produce accurate information but to ensure that all o/h are charged to products

• Areas requiring subjective judgements in AC

EstimatesApportionment methodRecovery RateR&dUse of Estimate