CAT / FIA FMA Syllabus C. Cost Accounting Techniques - Manufacturing overheads - Notes 21 / 23
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.
