CA Inter P4 · Chapter 4 · Question 10 of 11
Overheads under-absorbed because the factory was closed for two months due to a flood should be:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Transferred to the Costing Profit and Loss Account
Explanation
Under-absorption caused by abnormal factors such as floods, fire or strikes does not relate to the normal cost of products. It is written off to the Costing Profit and Loss Account so that product costs are not distorted. A supplementary rate is used only for differences arising from incorrect estimates.
More Overheads - Absorption Costing Method MCQs
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- Q2Budgeted factory overheads were ₹9,60,000 and budgeted direct labour hours 48,000. Actual overheads amounted to ₹9,90,000 and actual hours…
- Q3Where a significant amount of under-absorbed overhead arises because of incorrect estimation of overheads or activity level, the preferred…
- Q4Service department X has primary overheads of ₹84,000 and service department Y has ₹60,000. X renders 20% of its services to Y, and Y…
- Q5The most appropriate basis for apportioning canteen expenses among production and service departments is: