ECR cost bookkeeping question
System
Posts: 100,534 🤖 Admin 🤖
Hi everyone,
Trying to prepare for the June dates I find myself confused (besides may things) about a past costing paper (June 2004) tasks 1.5 and 1.6.
One has to calculate absorbed overheads and there are some actual ones given as well, so you can calculate under/over absorption - seems clear.
Then you have to put this data into the costing ledgers.
Based on the information in my books, I just cannot understand how and why they have arrived at the correct answer.
I do not understand why the absorbed overheads go the debit side of WIP?!?
and, why the actual incurred costs are credited to Production overhead control?!?
I have just done it the other way around and I do not find any reference in my books as how to do this.
I do not even understand why use absorbed values here, I thought these costing ledgers are drawn up once all the costs are known and actual - nothing to do with budgets... I am obviously wrong.
Further, task 1.6 again using absorbed values when was convinced that I have to use actual values (i.e.6200 and 5150)!?!
I would be grateful if someone could enlight me!!!
Many thanks in advance,
Sarolta
Trying to prepare for the June dates I find myself confused (besides may things) about a past costing paper (June 2004) tasks 1.5 and 1.6.
One has to calculate absorbed overheads and there are some actual ones given as well, so you can calculate under/over absorption - seems clear.
Then you have to put this data into the costing ledgers.
Based on the information in my books, I just cannot understand how and why they have arrived at the correct answer.
I do not understand why the absorbed overheads go the debit side of WIP?!?
and, why the actual incurred costs are credited to Production overhead control?!?
I have just done it the other way around and I do not find any reference in my books as how to do this.
I do not even understand why use absorbed values here, I thought these costing ledgers are drawn up once all the costs are known and actual - nothing to do with budgets... I am obviously wrong.
Further, task 1.6 again using absorbed values when was convinced that I have to use actual values (i.e.6200 and 5150)!?!
I would be grateful if someone could enlight me!!!
Many thanks in advance,
Sarolta
0
Comments
-
Re:ECR cost bookkeeping question
Hi,
This goes back to the principles- the purpose of overhead absorbtion is to allocate ocerheads to production units.
Therefore, absorbed overheads represent expense that has gone into the production process. By the principals of double-entry book-keeping, this amount is debited to the Work-in-Progress account.
In the Production Overheads Control, since the absorbed overhead is debited, the actual incurred is credited and the balance represents either an additional expense (if overheads have been under-absorbed) or income (if they have been over-absorbed) item.
I do recall reading in Colin Drury's "Cost and Management Accounting" a very convincing arguement for why budgeted rather than actual overheads should be used. Unfortunately, without a copy in front of me I can't really repeat it.
I hope this helps, or at least points you in the right direction.0 -
Re:ECR cost bookkeeping question
Hi, Thanks for your help GJP104! I shall look into the given reference!0