Returning to our example of Jarvis Jackets Ltd, now calculate the hourly overhead absorption rate for each department. You can choose to base the rate on direct labour hours or on machine hours. The following table gives details of the direct labour hours and machine hours required in each department to make 5,000 jackets.

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Cutting department Stitching department 30,000 Direct labour hours Machine hours 10,000 40,000 5,000