Page 159 - F2 - MA Integrated Workbook STUDENT 2018-19
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Accounting for overheads
Production overhead account
The production overhead account gathers all of the production overheads (or indirect
costs) in a period.
Example 8
Production overhead account
$ $
Actual overhead incurred 24,000 Absorbed overhead (WIP) 24,000
–––––– ––––––
24,000 24,000
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 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 account would be zero.
Where there is a remaining balance on the production overhead account, this
represents the amount of production overhead which is under absorbed
(debit balance) or over absorbed (credit balance).
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