COST ACCOUNTING SYSTEM
In question it's given as administration overhead incurred ( production ) ....under which head if should be absorbed ( production OH , WIP or finished goods) ? Under which one
Whatever admin o/h u generally absorb are to finished goods only. But as per new format of cost sheet given by icai, they segregated the admin o\h related to production and admin o/h related to sales > so, admin o/h related to production absorb them to finished goods a/c and >admin o\h related to sales u absorb to cost of sales a/c.
(1) Administrative overheads may be treated as cost of manufacture. In that case administrative overheads are absorbed to Work-in-progress A/c instead of finished goods A/c. (2) Administrative overheads may be treated as cost of sales. In that case administrative overheads are transferred to Cost of sales A/c instead of finished goods A/c.