Page 193 - DCOM202_COST_ACCOUNTING_I

Unit 9: Absorption of Overheads

costing is that the recovery of overhead should be made on actual basis, as for as possible, Notes
so that overheads may be directly charged to jobs, processes, operations, or products.
Actual overhead exp ensesincurredduringa period

Actual Rate =

Actual quuantityorvalue of thebasefor theperiod
Under absorption of Overheads = Incurred overhead – Absorbed overhead

Example:
Dr. Cr.
date Particular J/F Amount (`) date Particular J/F Amount (`)
01. To SLCA a/c 210000 01. By WIp a/c 390000
02. To WLCA a/c 135000 By closing p/L
03. To GLA a/c 65000 a/c 20000
410000 410000
!

Caution The adjustment of under absorbed overhead would result in a loss in the form of
increase in cost where the under absorption is normal and in the form of abnormal loss
where it is abnormal.

Over Absorption of Overhead

The overheads are over absorbed if the actual overheads incurred are less than the overheads
absorbed.
Over-absorbed overhead = Absorbed overhead – Incurred overhead

Example:

Dr. Cr.
date Particular J/F Amount (`) date Particular J/F Amount (`)
01. To SLCA a/c 200000 01. By WIp a/c 460000
02. To WLCA a/c 145000 By closing p/L a/c
03. To GLA a/c 65000 10000
04. To Closing p/L
a/c 50000
470000 470000

!

Caution The adjustment of over absorbed overhead would result in a gain in the form of
reduction in cost where the over absorption is normal and in the form of abnormal profit
where it is abnormal.

Self Assessment

State whether the following statements are true or false:

11. The overheads are under absorbed if the actual overheads incurred are less than the
overheads absorbed.

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