CMA Intermediate · Cost Accounting · Cost Accounting Standards (CAS 1 to CAS 24)
Under CAS 3 (Production and Operation Overheads), which treatment is correct for the cost of abnormal idle capacity?
Abnormal idle capacity cost is not part of product cost; it is charged to the Costing Profit and Loss Account. Absorbing it into products would overstate cost and inventory value because the idle time is not a normal cost of production.
- ACharged to the Costing Profit and Loss Account, not absorbed in product costCorrect
- BIncluded in the cost of products produced
- CSpread over closing stock only
- DCarried forward as a prepaid overhead
Explanation
Cost of abnormal idle capacity is not a normal cost of production. It is therefore not absorbed in product cost and is charged to the Costing Profit and Loss Account.
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