Skip to content

CMA Intermediate · Cost Accounting · Cost Book-Keeping

A factory's overheads absorbed in production were ₹4,50,000 while actual factory overheads incurred were ₹4,80,000. In cost book-keeping, the correct treatment of the difference is:

Under-absorption of ₹30,000 leaves a debit balance in Factory Overhead Control. It is transferred by debiting Costing Profit and Loss and crediting Factory Overhead Control, as actual overheads of ₹4,80,000 exceed the ₹4,50,000 absorbed.

  1. ADebit Costing P&L A/c ₹30,000 and credit Factory Overhead Control A/c ₹30,000, being under-absorptionCorrect
  2. BDebit Factory Overhead Control A/c ₹30,000 and credit Costing P&L A/c ₹30,000, being under-absorption
  3. CDebit Costing P&L A/c ₹30,000 and credit Factory Overhead Control A/c ₹30,000, being over-absorption
  4. DCredit WIP Control A/c ₹30,000 as over-absorption

Explanation

Actual ₹4,80,000 exceeds absorbed ₹4,50,000, so ₹30,000 is under-absorbed. The Factory Overhead Control account has a debit balance of ₹30,000, which is closed by crediting it and debiting Costing P&L. Option 3 mislabels it as over-absorption.

Did you get it right without looking?

One question tells you little. A timed set on Cost Book-Keeping shows your real accuracy, how long you take and where you lose marks.

Practise Cost Book-KeepingFree diagnostic mock

More Cost Book-Keeping questions