Page 149 - BA2 Integrated Workbook STUDENT 2018
P. 149
Integrated accounting systems
Under and over absorption of overheads
4.1 Production overhead control account
The production overhead control account gathers all of the production overheads
(or indirect costs) in a period.
For example:
Production overhead control account
$ $
Indirect materials 5,000
Indirect labour 7,500
Utilities 2,500
Depreciation of machinery 6,000
Other production overheads 3,000
At the end of the period the production overhead cost is absorbed into work in
progress costs using the predetermined overhead absorption rate. The amount
absorbed is credited in the production overhead control account and debited in the
work in progress account.
In the above, if we assume $24,000 would be debited to the work in progress
account, the balance on the production overhead control account would be zero.
Where there is a remaining balance on the production overhead control account, this
represents the amount of production overhead which is under absorbed (debit
balance) or over absorbed (credit balance).
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