CA Intermediate · Cost and Management Accounting · Overheads - Absorption Costing Method
Which statement about the treatment of under-absorbed overheads caused by abnormal factors, such as a prolonged strike, is correct in cost accounting?
Under-absorption arising from abnormal causes, like a prolonged strike, is written off to the Costing Profit and Loss Account. It is not a normal production cost, so it is not spread over products through a supplementary rate.
- ACharged to the cost of units produced through a supplementary rate
- BCarried forward to the next year
- CWritten off to the Costing Profit and Loss AccountCorrect
- DAdded to closing work-in-progress only
Explanation
Under-absorption due to abnormal causes is not a normal cost of production, so it is written off to the Costing Profit and Loss Account. Supplementary rates apply to under-absorption from normal causes such as inaccurate estimates.
Did you get it right without looking?
One question tells you little. A timed set on Overheads - Absorption Costing Method shows your real accuracy, how long you take and where you lose marks.
More Overheads - Absorption Costing Method questions
- Sundaram Castings apportions factory rent of ₹1,20,000 on floor area. Floor areas: Machining 3,000 sq ft, Assembly 2,000 sq ft, Stores (serv…
- Kaveri Engineering has two production departments, P and Q, and one service department, S. Overheads after primary distribution: P Rs 2,40,0…
- Ganga Engineering absorbs overheads at 120% of direct wages. Budgeted overheads were Rs 12,00,000 and actual direct wages were Rs 11,00,000,…
- Under which of the following situations would a company most appropriately prefer a machine hour rate over a direct labour hour rate for abs…
- Sharma Components Ltd. has two production departments, P and Q, and one service department, S. Overheads after primary distribution: P ₹2,40…
- Which of the following is the correct treatment when under-absorbed overhead arises due to abnormal factors such as a prolonged strike or ma…