Production overheads are absorbed into production on the basis of actual activity. The absorbed overheads are credited out of the production overheads account and transferred to the WIP account where they are added to the cost of production , hence the cost of sales.
This is WIP on credit side but it seems like its OH absorbed.
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Production overhead account
And one more question
Aalia CO absorbs production overheads at the rate of $1.20 per machine hour
The monthly data for April 20X6 is as follows
Production overheads $20,500
Machine hours 20,200
Which of the following amounts would be shown as a DEBIT entry on the production overhead account?
1) Production overheads incurred $20,500
2) Over absorption of production overheads 3470
3) Production overheads absorbed $24,240
Sir answer should be 2 only but the answer written is 2 and 3?
Pls explain this?
5y ago#2What you have written in your first post is correct.
With regard to your second post it would seem that there is a mistake in your book because the absorbed amount of 24,240 should be credited to the overheads account (and debited in the WIP account). The over absorption will be debited in the overheads account.
So i am right? The answer should be 2 only
5y ago#4Yes. 2 only.
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