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CMA Intermediate · Cost Accounting · Integrated Accounting System

In an integrated system, factory overheads incurred were Rs 1,84,000 and overheads absorbed in production were Rs 1,92,000. What is the treatment of the difference at the period end?

Overheads are over-absorbed by Rs 8,000 because absorbed Rs 1,92,000 exceeds actual Rs 1,84,000. The credit balance in the overhead control account is transferred to the Costing Profit and Loss Account as a credit, increasing profit.

  1. ARs 8,000 under-absorbed, debited to Costing Profit and Loss Account
  2. BRs 8,000 over-absorbed, credited to Costing Profit and Loss AccountCorrect
  3. CRs 8,000 over-absorbed, debited to Costing Profit and Loss Account
  4. DRs 8,000 under-absorbed, credited to Work-in-Progress Account

Explanation

Absorbed Rs 1,92,000 exceeds actual Rs 1,84,000, so overhead is over-absorbed by Rs 8,000. Over-absorption is a credit balance in the Overhead Control account and is transferred by crediting Costing Profit and Loss Account. Calling it under-absorbed reverses the comparison.

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