Under absorption overhead

Those finished goods have already absorbed their share of OH

Sudha Reddy

CA Final

★ 20K+

16-Mar-23 10:42

I am talking about the under absorption which we are transferring to costing pnl.not the general overhead

Thread Starter

Gokul Nath

CA Inter

★ 605

16-Mar-23 15:28

Can you give the details of the content or illustration you are referring to.

Sudha Reddy

CA Final

★ 20K+

16-Mar-23 15:40

Imagine this is in cost sheet.at the end of the cost sheet, we find the profit and now we subtract or add under absorption or over absorption to find the actual profit for that product.what i am asking is we add all the under/over absorption for that product in the cost sheet, but the under/over absorption is due to every product in the factory.but my question here is since we reduce closing work in progress from cost sheet doesn't it means we can only transfer proportionate under/over absorption to find the actual profit instead of transfer all under/over absorption to the profit and loss account

Thread Starter

Gokul Nath

CA Inter

★ 605

16-Mar-23 16:07

Isnt under / over absorption after allocating to WIP

Sudha Reddy

CA Final

★ 20K+

18-Mar-23 10:14

Yes.but in a cost sheet presentation when u want to bring the cost profit to financial(actual) profit,you reduce it using under/over absorption

Thread Starter

Gokul Nath

CA Inter

★ 605

18-Mar-23 12:25

Under absorption or over absorption is an item of abnormal nature. The reason for under absorption or over absorption is deviation from plan/budget. Any item of abnormal nature cannot be made a part of the cost of normal production/output and has to be transferred to the costing p and l

Pranay Mehta

Faculty

24-Mar-23 09:12

What goes to the product is only normal cost. Since there is under/over absorption we need to adjust it separately

Pranay Mehta

Faculty

24-Mar-23 09:13