In 2020 the budget for a machine shop showed overheads of P60,000 and volume of activity of 12,000 machine hours. In January of 2020, the machine shop incurred P5,400 of overhead and 1,050 machine hours were worked.

Required: a. Determine:

i. The predetermined absorption rate. (3 marks)

ii. The under/over absorption rate. (4 marks)

b. With the use of calculation, explain the factors that contributed to the under/over absorption of overheads. (6 marks)