How the problems are made
Each problem is an invented factory with two production departments and one or two service departments. Level 1 shares out the overheads, level 2 re-apportions the service departments, level 3 works out the rates and the under- or over-absorption, level 4 costs a job, and level 5 is the whole question, as SQA set it in 2025.
Check marks every box and menu. The slips the examiners report each get a hint of their own, and a figure that is wrong only because an earlier box is wrong is marked as following your figures.
An example from set HAR4J7
Morvenhall Castings Ltd's Forming department has £103,570 of overheads after re-apportionment and budgets 51,785 machine hours, so its rate is £103,570 ÷ 51,785 = £2.00 per machine hour. It worked 53,075 machine hours and absorbed 53,075 × £2.00 = £106,150, but spent £108,770: £2,620 under-absorbed. Assembly absorbs £101,040 ÷ £84,200 × 100 = 120% of direct material cost. Its actual materials of £87,000 absorbed £104,400 against £101,980 spent: £2,420 over-absorbed. Open set HAR4J7
The presets
SQA Higher follows the 2025 paper and its marking instructions: lettered departments, an Overhead Analysis Statement with a Basis and a Total column, step-down re-apportionment, a Job Cost Statement with a Prime cost line and a profit margin, and a factory-wide rate per unit. Cambridge 9706 follows the Paper 2 mark schemes: dollars, "Overheads allocated", shares to the nearest dollar, a suitable rate to two decimal places, and a selling price at a gross margin. General uses the same steps in plain words, with the direct method and mark-ups too.
Questions
How do you calculate an overhead absorption rate?
Divide the production department's overheads, after the service departments are re-apportioned, by its budgeted activity. In SQA's 2025 Higher paper, £197,760 ÷ 82,400 machine hours = £2.40 per machine hour, and £120,000 ÷ £240,000 direct materials × 100 = 50% of direct material cost. Always say what the rate is per.
How do you work out under- or over-absorption of overheads?
Overheads absorbed = actual activity × the rate. Compare that with the actual overheads: absorbed more is over-absorbed, absorbed less is under-absorbed. In the same SQA paper, 78,500 × £2.40 = £188,400 against £195,120 actual, so £6,720 is under-absorbed. Comparing the budgeted total with the actual overheads is the mistake SQA's 2025 report names.
What is the difference between allocation and apportionment?
An overhead is allocated when it can be traced to one department, like each department's own indirect labour. It is apportioned when it belongs to the business as a whole, like rent, and is shared on a basis such as floor area.
Which basis is used to apportion each overhead?
Rent, rates, heat and light and building insurance follow floor area. Supervision, administration and canteen costs follow the number of employees. Machinery depreciation and insurance follow the value of machinery, and power or electricity follows kilowatt hours. These are the bases in the SQA and Cambridge mark schemes.
What is the step-down method of re-apportionment?
The service department that serves the other one goes first, and its share goes to the other service department too: a canteen feeds the stores staff. Then the second service department is shared between the production departments only. The direct method sends both straight to production.
Where does prime cost go in a job cost statement?
Direct materials + direct labour + direct expenses = prime cost, labelled, before any overheads. Then add each department's overheads for the total cost, then profit, for the selling price. A 20% margin is cost ÷ 80 × 20; a 20% mark-up is 20% of cost.
What is a factory-wide overhead absorption rate?
One rate for the whole factory instead of one per department: all the overheads ÷ one measure of activity. SQA's 2025 paper raised £317,760 by 25% to £397,200 and divided by 20,000 units: £19.86 per unit. It is simpler but less accurate when products use the departments differently.
Sources, checked October 29, 2026: SQA Higher Accounting 2025 question paper, 2025 marking instructions, 2025 course report and 2023 marking instructions (PDFs); Cambridge International AS and A Level Accounting 9706 2026-2028 syllabus, specimen Paper 2 with its mark scheme, the June 2024 principal examiner report, and the November 2023 report and the June 2024 9706/23 paper and mark scheme.