Manufacturing overheads

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Manufacturing overheads incurred and absorbed

Remember!

  • The indirect costs of production (materials, labour and expenses) are debited in the production overhead account (see below in the picture)

  • Absorbed production overheads (O.A.R. X Actual Activity level) are credited to the production overheads account

  • If debit is more than credit, then this is under absorption and will be credited to the production overhead account (see below in the picture)

  • If debit is less than credit, then this is over absorption and will be debited to the production overhead account

Any over- or under- absorption should be transferred to the income statement at the end of the accounting period.

If it is Under-absorption then debited as a loss to the income statement.

If it is Over-absorption then credited as a profit to the income statement.

ACCA MA F2 B1cvi study materials Production overheads account
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