unit 6 overhead wip

valentino46

hi guys,

has anyone got an easy way of remembering how to post overheads to WIP etc

cheers

rob

Dipak Thanki

Ooops, I got it wrong =P.

sdv

valentino46 wrote: »

has anyone got an easy way of remembering how to post overheads to WIP etc


rob

Think of your WIP a/c as Process account.

The input (DEBIT) in the process account is

Material (Actual Cost = Variable)
Labour (Actual Cost = Variable)
Overheads (Absorbed per Hours/Unit based on BUDGETED costs)

and the output (CREDIT) is the finished goods.

ABSORBED Overheads are DEBITED in the process account (WIP) and CREDITED in the OVERHEAD CONTROL account.

ACTUAL Overheads are debited in the OVERHEAD CONTROL account.

The Difference in the Overhead control account is either over/under absorbed that gets transfered to profit and loss account.

However, in your skills test Over/under Absorption is not transfered from the contol a/c instead the journal is done in the following way.

Say ABSORBED Overheads is £1000

ACTUAL Overheads is £800

Therefore OVER ABSORBED (Profit = Credit) is £200

The JOURNAL

Debit Process Account (WIP)............. £1000

Credit Overheads Control a/c ........................£800
Credit OVER/UNDER absorbed a/c..................£200

I hope this helps

valentino46

thanks sdv, thats made it a lot clearer.

rob