Cost accounting - overheads

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 October 2011 sir / maam could u plz tel me what is the meaning of following in costing

1) overheads recovered
2)over & undear absorbtion ?

thanks alot in advance ...

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)

10 October 2011 Overhead recovered - well generally the overheads are the indirect expenses that are been incurred for the manufacturing of the products. These are the expenses which cannot be directly distributed/attributed to the product cost on per unit basis. e.g. wages of watchman, factory rent

These expenses are then absorbed to the product on a pre-determined basis. e.g. predetermined overheads amounts to Rs 10,000 and pre-determined normal prodiction was 1,000 units.

Then theseoverheads expenses will be recovered on the basis of pre-determined rate i.e. Rs 10,000 / 1,000 units = Rs 10/ unit.

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)

10 October 2011 The overheads expenses are charged to the production cost on a pre-determined basis dependent upon the no. of units produced. Therefore, the recovered overheads amounts to the amount of

Pre-determined Rate* No. of units produced

if example 9,000 units were produced then the overheads rcovered amont to Rs 90,000 i.e. 9,000 units * Rs 10/unit

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)

10 October 2011 Everytime the quantity may not be the same as it was pre-determined in the beginning of the year. In the above example we presumed the normal production to be 10,000 units, but in actual 9,000 units were produced.

Due to the under or over production, or due to change in the estimate of Overheads incurred i,e, it may also happens that the overheads expenses that we predetermined was Rs 10,000 but the aCTUAL EXPENSES may also undergone change keeping the production constant.

The above conditions results into either Over / Under absorption of Overheads

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)

10 October 2011 If the Overheads recovered as calculated above exceeds the actual expenses it amounts to Over absorption

but when the vice versa happens i.e. Overheads recovered are less than Actual Overheads incurred it is Under ABsorbtion of overheads

Querist : Anonymous

Querist : Anonymous (Querist)

10 October 2011 thanks alot sir ...

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