Skip to content

CMA Final · Cost and Management Audit · Overview of Cost Accounting Standards and GACAP

In Cost Accounting Standard 3 (Overheads) as applied in a cost audit of Sundaram Engines Ltd, which treatment of abnormal idle capacity cost is correct?

Cost of abnormal idle capacity is not absorbed in product cost; it is charged to the costing profit and loss account. Including it in factory or administration overheads, or spreading it over stock and sales, would overstate the cost of products and contradict the standards.

  1. AInclude it in the factory overhead absorbed by production
  2. BSpread it over closing stock and cost of sales
  3. CCharge it to the costing profit and loss account, not to the cost of productsCorrect
  4. DAdd it to administration overheads

Explanation

Under CAS 2 and CAS 3, the cost of abnormal idle capacity, arising from abnormal causes, is not part of the product cost. It is charged to the costing profit and loss account. Absorbing it into products or administration overheads would overstate product cost, which is the main error in the other options.

Did you get it right without looking?

One question tells you little. A timed set on Overview of Cost Accounting Standards and GACAP shows your real accuracy, how long you take and where you lose marks.

Practise Overview of Cost Accounting Standards and GACAPFree diagnostic mock

More Overview of Cost Accounting Standards and GACAP questions