CA Intermediate · Cost and Management Accounting · Overheads - Absorption Costing Method
Mehta Industries had under-absorbed factory overhead of Rs 18,000 at year end. Overheads absorbed were Rs 2,70,000. Which statement is correct?
Actual overheads were Rs 2,88,000. Under-absorption arises when overhead incurred exceeds overhead absorbed into production, so the shortfall of Rs 18,000 is added to the absorbed amount of Rs 2,70,000.
- AActual overheads were Rs 2,52,000
- BActual overheads were Rs 2,88,000Correct
- CActual overheads were Rs 2,70,000
- DActual overheads were Rs 3,06,000
Explanation
Under-absorption means actual overhead exceeds absorbed overhead. Actual = 2,70,000 + 18,000 = Rs 2,88,000. Rs 2,52,000 wrongly treats the difference as over-absorption.
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