Subject : Costing
Chapter : overheads absorption costing method
Question
ABC Ltd. manufactures a single product and absorbs the
production overheads
at a pre-determined rate of ` 10 per machine hour.
At the end of current financial year, it has been found that actual
production
overheads incurred were ` 6,00,000. It included ` 45,000 on
account of ‘writtenoff’ obsolete stores and ` 30,000 being the
wages paid for the strike period under
an award.
The production and sales data for the current year is as under:
Production :
Finished goods 20,000 units
Work-in-progress 8,000 units0
(50% complete in all respects)
Sales :
Finished goods 18,000 units
The actual machine hours worked during the period were 48,000.
It has been
found that one-third of the under-absorption of production
overheads was due
to lack of production planning and the rest was attributable to
normal increase
in costs.
(i) CALCULATE the amount of under-absorption of production
overheads
during the current year; and
(ii) SHOW the accounting treatment of under-absorption of
production overheads.
Chapter : overheads absorption costing method
Question
ABC Ltd. manufactures a single product and absorbs the
production overheads
at a pre-determined rate of ` 10 per machine hour.
At the end of current financial year, it has been found that actual
production
overheads incurred were ` 6,00,000. It included ` 45,000 on
account of ‘writtenoff’ obsolete stores and ` 30,000 being the
wages paid for the strike period under
an award.
The production and sales data for the current year is as under:
Production :
Finished goods 20,000 units
Work-in-progress 8,000 units0
(50% complete in all respects)
Sales :
Finished goods 18,000 units
The actual machine hours worked during the period were 48,000.
It has been
found that one-third of the under-absorption of production
overheads was due
to lack of production planning and the rest was attributable to
normal increase
in costs.
(i) CALCULATE the amount of under-absorption of production
overheads
during the current year; and
(ii) SHOW the accounting treatment of under-absorption of
production overheads.
