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Supplementary overhead rate

IPCC 6073 views 1 replies

Sumanta Das Gupta

Accountant

310 Points Posted on 09 February 2014

Can somebody please explain the concept of supplementary overhead rates, it's application and why is it used ?

With best regards.

Replies (1)

Quick Summary

Supplementary overhead rate is used to adjust under or over absorbed overheads in cost accounting. It helps correct product costing caused by seasonal variations or faulty planning by distributing excess or short overheads to finished goods, work in progress or profit and loss account.

Shubham kumar

620 Points Posted on 10 February 2014

When there is undervaluation of Overhead then we calculate undervaluation overhead Rate or it's called supplementary Rate. Undervaluation may be due to *Seasonal variation or *Faulty planning of Management. (transferred to P/L) So, to cover undervaluation we use supplementary rate. Eg. If 1000 unit of products is produced and 600 is sold and let undervaluation of OH is Rs.20,000 then OH rate comes Rs.20. So 600*20=12000 Will be transferred to P/L and Balance 400unit *20= 8000 we will increase price by 8000 of 400 units to recover Under absorption.