Absorption costing on June 04 paper

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hello Everyone<BR><BR>Thanks for all your help on my last query.<BR><BR>This is in regards to question 1.5, the journal entries. Why is the w-i-p figure the absorbed overheads rather than the actual overheads? I thought it would have been the other way round with absorbed o'heads charged to overhead control.<BR><BR>Many thanks<BR>Bobbi

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Absorption costing on June 04 paper

    The entries made on the WIP account are your estimates of what the overheads will be, so they are your estimated absorbed overheads. Then when you know exactly how many hours were worked in the period, you can work out the actual overheads absorbed and then this is the figure charged to the fixed overhead control account.<BR><BR>The difference between these two figures is then your under or over absorbed amount. If it is underabsorbed, ie the estimate was lower than the actual, then the amount is a debit posting and if it is overabsorbed, ie the estimate was higher than the actual, the amount is a credit posting as these will either increase or reduce costs in the profit and loss account.<BR><BR>I hope this helps!<BR><BR>Liz
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Absorption costing on June 04 paper

    Thanks, yeah that definitely helps, was getting in a twist over that one.<BR>Regards<BR>Bobbi

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