Skip to content

CA Intermediate · Cost and Management Accounting · Employee Cost and Direct Expenses

In a factory, the cost of idle time arising from a normal power failure of 2 hours per month is treated in cost accounting as follows:

Normal idle time cost, such as a routine short power failure, is treated as a factory overhead and absorbed into production through the overhead rate. Only abnormal idle time is written off to the Costing Profit and Loss Account, because it is not a regular, expected cost of production.

  1. ACharged to Costing Profit and Loss Account
  2. BCharged to factory overheads and absorbed in productionCorrect
  3. CAdded to the direct wages of the workers concerned only
  4. DCharged to the Costing Profit and Loss Account as abnormal loss

Explanation

Normal idle time is an unavoidable part of operations. Its cost is included in factory overheads and absorbed through the overhead rate into production. Abnormal idle time is the one that goes to Costing Profit and Loss Account, so options referring to abnormal treatment are wrong for a normal event.

Did you get it right without looking?

One question tells you little. A timed set on Employee Cost and Direct Expenses shows your real accuracy, how long you take and where you lose marks.

Practise Employee Cost and Direct ExpensesFree diagnostic mock

More Employee Cost and Direct Expenses questions