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CMA Intermediate · Cost Accounting · Cost Book-Keeping

Administration overheads of ₹90,000 are incurred in a month, and the firm absorbs them into cost of finished goods at 10% of factory cost. Factory cost of goods completed was ₹8,00,000. The entry for absorption in the cost ledgers is:

Administration overhead absorbed is 10% of ₹8,00,000, which is ₹80,000. Finished Goods Control is debited and Administration Overhead Control credited by that amount. The remaining ₹10,000 is under-absorbed and transferred to Costing Profit and Loss.

  1. AFinished Goods Control A/c Dr. ₹80,000 to Administration Overhead Control A/c ₹80,000Correct
  2. BAdministration Overhead Control A/c Dr. ₹80,000 to Finished Goods Control A/c ₹80,000
  3. CFinished Goods Control A/c Dr. ₹90,000 to Administration Overhead Control A/c ₹90,000
  4. DWork-in-Process Control A/c Dr. ₹80,000 to Administration Overhead Control A/c ₹80,000

Explanation

Absorbed amount is 10% × ₹8,00,000 = ₹80,000. It is debited to Finished Goods (cost of goods completed) and credited to Administration Overhead Control. The ₹10,000 balance is under-absorbed and goes to Costing P&L. Using ₹90,000 ignores the absorption rate.

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