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CMA Intermediate · Cost Accounting · Integrated Accounting System

In an integrated system, factory overhead actually incurred was Rs 2,46,000 and overhead absorbed in production was Rs 2,40,000. Finished goods costing Rs 6,00,000 were sold for Rs 7,50,000 on credit. Overheads under-absorbed are written off to Costing Profit and Loss A/c. What gross profit-related debit balance effect arises for the under-absorption, and what is the profit on sale before adjusting it?

Actual overhead of Rs 2,46,000 exceeds absorbed overhead of Rs 2,40,000, so Rs 6,000 is under-absorbed and debited to Costing Profit and Loss. Profit on sale is Rs 7,50,000 minus Rs 6,00,000, which is Rs 1,50,000, before this adjustment.

  1. AUnder-absorption Rs 6,000 debited to Costing P&L; profit on sale Rs 1,50,000Correct
  2. BOver-absorption Rs 6,000 credited to Costing P&L; profit on sale Rs 1,50,000
  3. CUnder-absorption Rs 6,000 debited to Costing P&L; profit on sale Rs 1,56,000
  4. DUnder-absorption Rs 12,000 debited to Costing P&L; profit on sale Rs 1,50,000

Explanation

Under-absorption = 2,46,000 - 2,40,000 = Rs 6,000, a debit to Costing P&L. Profit on sale = 7,50,000 - 6,00,000 = Rs 1,50,000. Net profit after adjustment is Rs 1,44,000. The over-absorption option reverses the direction; the Rs 1,56,000 option adds the under-absorption.

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