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CMA Intermediate · Cost Accounting · Reconciliation of Costing and Financial Profit

In a factory, overheads absorbed in cost accounts were ₹3,60,000 whereas actual overheads in financial accounts were ₹3,95,000. Opening stock and closing stock are the same in both sets of books. If the profit as per cost accounts is ₹2,50,000 and no other differences exist, the profit as per financial accounts will be:

Financial profit is ₹2,15,000. Overheads were under-absorbed by ₹35,000 in the cost accounts, because actual ₹3,95,000 exceeded absorbed ₹3,60,000. Cost profit was therefore overstated relative to financial accounts, so the under-absorption is deducted from ₹2,50,000.

  1. A₹2,85,000
  2. B₹2,15,000Correct
  3. C₹2,50,000
  4. D₹3,60,000

Explanation

Actual overhead exceeds absorbed overhead by ₹35,000, meaning overheads are under-absorbed. The cost accounts charged less than the financial accounts, so cost profit is overstated. Financial profit = 2,50,000 - 35,000 = ₹2,15,000. Adding the amount instead gives the wrong option ₹2,85,000.

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