The over-absorbed overhead is accounted for as an adjustment to the profit in the period, and is added to profit in the cost accounting income statement.

Related MCQs

• Which of the following procedure is incorrect for attributing overhead costs to cost units? I. Collecting production overhead costs by item II. Establishing cost centres III. Allocating and apportioning overhead costs to cost centres IV. Apportioning service cost centre costs to production cost centres V. Absorbing production cost centre costs into cost units
• When the abnormal has a scrape value the net cost of abnormal loss (cost of abnormal loss minus its scrap value) is then transferred as a cost to the cost accounting income statement at the end of the accounting period.
• Variable overhead is overhead that increases as more production work is done. Total variable overhead expenditure therefore depends on the volume of production. Variable overhead is usually calculated as an amount for each direct labour hour worked.
• Overhead absorption is the process whereby overhead costs allocated and apportioned to production cost centres are added to unit, job or batch costs.
• Which of the following cost is also known as overhead cost or on cost:
• Apportionment means sharing on a reasonable basis. Many overhead costs are costs that cannot be allocated directly to one cost centre, because they are shared by two or more cost centres. These costs are apportioned between the cost centres.
• Overheads are usually added to cost units using a predetermined overhead absorption rate, which is calculated using figures from the budget.
• Allocation is where overheads are allocated to cost centres. If a cost centre is responsible for the entire cost of an item of expenditure, the entire cost is charged directly to the cost centre.
• Overhead absorption is sometimes called overhead recovery.
• . Which of the following is most likely to be an allocated production overhead cost to the finishing cost centre?