Journal entry for Production Overheads

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Please can anyone help me with the following:
Actual production overheads £62100
Production overheads to be absorbed into work in progress:
Cutting Department £11900
Sewing Department £10400
Packing Department £8700
What should the journal entries be:
WIP Cutting DR or CR
WIP Sewing DR or CR
WIP Packing DR or CR
Poduction overhead control Account DR or CR
I think the Department should be Dr and the O'head account credited?
And
Entries for overhead Under/over absorbed during month
Overhead over/under absorbed(P+L) DR or CR
Production Overhead control DR or CR
I think the O'head account should be Dr with the underabsorbed amount of £31100 ? Please can anyone help :cry:

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Journal entry for Production Overheads

    As the overhead account would already be showing as a charge in the P&L (all costs are debit in the P&L) and this account is the one being distributed amongst the cost centres to be cleared to zero with the balancing entry being over/under absorption, the entries would be to debit the cost centres and credit overhead account. I haven't done the maths, but if there is an under absorption then to clear the overhead account you would need to credit it and debit the over/under absorption account.

    If in doubt, do the "T" accounts to get your final entry.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Journal entry for Production Overheads

    Hi Lorrie
    Are you sure the Actual Production O/H is £62100 and not £32100?
    The procedure is as described by TLG but I think the figures may be wrong.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Journal entry for Production Overheads

    Hi DLaccts
    Yes thats the figure in the exercise.
    Lorri
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Journal entry for Production Overheads

    I agree with your original posting:
    This would mean
      DR Production Overhead account £62,100
      CR
    probably Creditors Control £62,100

    Then
      DR WIP Cutting £11,900
      CR Production Overhead account £11,900

    And
      DR WIP Sewing £10,400
      CR Production Overhead account £10,400

    And
      DR WIP Packing £8,700
      CR Production Overhead account £8,700

    This leaves a £31,100 debit balance in the Production Overhead account of unabsorbed overhead So the next step (as you had said)
      DR Under/Over Absorbed Overhead Account (or P&L) £31,100
      CR Production Overhead account £31,100
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Journal entry for Production Overheads

    Thanks for your help.
    I am finding managment accounts really hard.
    lorri
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Journal entry for Production Overheads

    The unabsorbed overhead appears to be a little to high. There may be an issue with the calculation of the absorbtion rates to the production departments. Are there any more departments that you need to allocate/apportion the overhead to(like service depts)? It looks a bit odd to have half your O/H as under/over absorbed figure.

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