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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Kapoor Engineering uses non-integrated accounts. For a quarter: Raw materials purchased ₹6,00,000; materials issued to production ₹5,20,000; direct wages ₹2,40,000; factory overhead incurred ₹1,90,000 and absorbed at 80% of direct wages; sales ₹14,00,000 at a cost of ₹11,00,000. What is the balance in the Factory Overhead Control A/c after absorption, and its nature?

The Factory Overhead Control account shows a credit balance of ₹2,000, meaning overhead is over-absorbed. Absorbed overhead is 80% of ₹2,40,000, which is ₹1,92,000, and this exceeds the actual overhead incurred of ₹1,90,000.

  1. A₹1,92,000 credit, over-absorbed
  2. B₹2,00,000 debit, under-absorbed
  3. C₹2,000 credit, over-absorbedCorrect
  4. D₹2,000 debit, under-absorbed

Explanation

Absorbed overhead = 80% × 2,40,000 = 1,92,000. Actual overhead = 1,90,000. Absorbed exceeds actual by 2,000, so the control account has a credit balance of ₹2,000, i.e. over-absorption. Option D reverses the sign.

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