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Chapter 7

6.1 Over absorbed overheads

If $28,500 of overheads were absorbed into work in progress:

Production overhead control account
$ $

Actual overhead incurred 24,000 Work in progress 28,500
Over absorption 4,500

–––––– ––––––
28,500 28,500

Production overhead over absorption account

$ $
24,000 Production overhead control 4,500

–––––– ––––––

To take this over absorption to the statement of profit or loss, the entry would be:

Debit Production overhead over absorption account
Credit Statement of profit or loss

A credit to the statement of profit or loss reduces the cost which makes sense as we
have absorbed too much overhead.

Note: If there is no production overhead over absorption account, the over absorption
can be taken straight to the statement of profit or loss. The entry to record the over
absorption would be:

Debit Production overhead control account
Credit Statement of profit or loss

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