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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Anand Textiles uses non-integrated accounts. Factory overheads incurred were ₹3,60,000 and overheads absorbed in production were ₹3,30,000. Selling overheads incurred ₹90,000. The cost books are closed by transferring under-absorbed overhead to Costing Profit and Loss A/c. Which statement correctly describes the treatment?

Overhead is under-absorbed by ₹30,000 (₹3,60,000 incurred less ₹3,30,000 absorbed). The debit balance in Factory Overhead Control is closed by crediting it and debiting Costing Profit and Loss Account, which lowers cost profit by ₹30,000.

  1. ACredit Factory Overhead Control A/c and debit Costing P&L A/c with ₹30,000Correct
  2. BDebit Factory Overhead Control A/c and credit Costing P&L A/c with ₹30,000
  3. CDebit Costing P&L A/c with ₹30,000 and credit Work-in-Progress Control A/c
  4. DCredit Costing P&L A/c with ₹90,000 and debit Cost Ledger Control A/c

Explanation

Under-absorption = 3,60,000 − 3,30,000 = 30,000, a debit balance in the Factory Overhead Control A/c. It is cleared by crediting that account and debiting Costing P&L A/c, reducing cost profit. Option B treats it as over-absorption. Options C and D involve wrong accounts or amounts.

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