CA Inter P4 · Chapter 4 · Question 3 of 11
Where a significant amount of under-absorbed overhead arises because of incorrect estimation of overheads or activity level, the preferred method of disposal is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Applying a supplementary rate to cost of sales, finished goods and work-in-progress
Explanation
When under- or over-absorption is large and arises from wrong estimates, it is corrected through a supplementary rate, adjusting the cost of sales, finished goods and work-in-progress. Write-off to the Costing Profit and Loss Account is used when the amount is small or arises from abnormal factors. Carry forward is used only where the operating cycle extends beyond a year.
More Overheads - Absorption Costing Method MCQs
- Q5The most appropriate basis for apportioning canteen expenses among production and service departments is:
- Q6A single overhead absorption rate computed for the factory as a whole and applied to all products is called a:
- Q7Budgeted factory overheads are ₹6,30,000 and budgeted prime cost is ₹21,00,000. Overheads are absorbed as a percentage of prime cost. A…
- Q8Fixed production overheads are ₹18,00,000 per annum and normal capacity is 60,000 units. Actual production for the year is only 45,000…
- Q9In a highly mechanised department where most of the work is done by machines with little manual intervention, the most suitable overhead…