CMA Intermediate · Cost Accounting · Overheads
Sundaram Engineering paid Rs 36,000 as annual insurance premium on its factory building. The premium covers 1 April to 31 March. The firm's cost records for the six months ended 30 September should include the premium as:
The insurance is a factory overhead and only the portion relating to the six months is charged, which is Rs 18,000, since the Rs 36,000 premium covers twelve months.
- ARs 36,000 as a direct expense
- BRs 18,000 as a factory overheadCorrect
- CRs 36,000 as an administration overhead
- DRs 6,000 as a factory overhead
Explanation
Factory building insurance is a factory overhead. Six months of cover gives 36,000 x 6/12 = Rs 18,000. Rs 6,000 would be wrong because it is only one month's charge, and the full Rs 36,000 ignores apportionment over time.
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