June 2004 ECR exam question

Jonno1

I'm working through an old BPP Revision companion for Unit 6 ECR, the exam paper is June 2004.

Task 1.5 is to prepare the journal entry for the absorption of fixed overheads for the cutting and finishing department.

In the cutting department there is an over-absorbed production overhead of £400, and in the stitching department there is an under-absorbed production overhead of £470.

When preparing the journal entries, I would have thought an over-absorbed overhead would be a debit entry in the production overhead control account as the balancing figure to be transferred to the P&L account, and an under-absorbed overhead would be a credit entry in the same account as a balancing figure to the P&L account.

However checking the answers, the over-absorbed overhead is given a CR entry, and the under-absorbed overhead is given a DR entry.

Can anyone advise here?
Many thanks, Jonno1

sdv

Jonno1 wrote: »

...................I would have thought an over-absorbed overhead would be a debit entry in the production overhead control account as the balancing figure to be transferred to the P&L account, ..................

You require the following accounts

Production (Process) / W-I-P Account (over heads expense Absorbed by use OAR) Debit W-I-P Credit Overheads Control Account

Bank Account - Actual Expenses paid out - Dedit Overheads Control Account and Credit Bank

Overheads Control Account - an accounts that sits between Bank (Actual) and W-I-P (Budgeted) - the difference to P&L a/c

Profit and Loss A/c


Expect to see Students Journals

WIP Cutting Dept..................................... 6600
Under/Over Absorbed Control a/c...............................6600
Actual (BanK) Fixed Overheads a/c.............................6200
Under/Over Absorbed Control a/c..................6200

This gives us a credit balance of £400 (over absorbed) in Under/Over Absorbed Control a/c

As usual the AAT answers have done a short cut - Very confusing for students

WIP Cutting Dept..................................... 6600
Under/Over Absorbed Control a/c.................................400
Actual (BanK) Fixed Overheads a/c.............................6200