CMA Intermediate · Cost Accounting · Overheads
As per the usual treatment of overheads in cost accounting, the cost of abnormal idle time arising from a power failure in a factory should be:
Abnormal idle time caused by a power failure is excluded from product cost and charged to the Costing Profit and Loss Account, because it is an abnormal loss and not a normal cost of production.
- ACharged to the cost of production as part of factory overheads
- BAdded to the closing stock value of work-in-progress
- CExcluded from product cost and charged to the Costing Profit and Loss AccountCorrect
- DSpread over all units produced in the following period
Explanation
Abnormal idle time and similar abnormal costs are not a normal part of production cost. They are written off to the Costing Profit and Loss Account. Charging them to production would inflate product costs and inventory values.
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