A factory applies Rs. 200,000 of overhead to production, while its actual overhead is Rs. 210,000. What is the result?
Correct answer: B. Rs. 10,000 under-absorption
- A. Rs. 10,000 over-absorption
- B. Rs. 10,000 under-absorption
- C. Rs. 200,000 under-absorption
- D. Rs. 210,000 over-absorption
Explanation
Overhead is under-absorbed when the amount applied to production is less than the actual overhead incurred. The difference is Rs. 210,000 minus Rs. 200,000, equal to Rs. 10,000.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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