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Dear sir,
this is not really a F2 question,but it was examined in F2
this question is from examiner’s report for Jan 15,A company uses a blanket overhead absorption rate of $5 per direct labour hour. Actual overhead expenditure in a period was as budgeted.
The under/over absorbed overhead account for the period have the following entries:
DR CR
$ $
Production overhead 4,000 Profit or loss account 4,000Which of the following statements is true?
A Actual direct labour hours were 800 less than budgeted
B Actual direct labour hours were 800 more than budgeted
C Actual direct labour hours were 4,000 less than budgeted
D Production overhead was over absorbed by $4,000I always thought that DR P/L means an expense,which means more labour hour were used?Why is it A?Thank you
Because the question says that they are crediting the Profit or Loss (not they are debiting it).
@johnmoffat said:
Because the question says that they are crediting the Profit or Loss (not they are debiting it).But in the P/L T-account is’nt it a debit?And if it is a debit ,should it be an expense(over absorption)?
But the question you typed actual says:
Dr Production overhead
Cr Profit or loss accountThey are crediting profit or loss account which is like income – i.e. the actual hours (and therefore the amount absorbed) is less that the budget hours (and therefore the amount budgeted).
@johnmoffat said:
But the question you typed actual says:Dr Production overhead
Cr Profit or loss accountThey are crediting profit or loss account which is like income – i.e. the actual hours (and therefore the amount absorbed) is less that the budget hours (and therefore the amount budgeted).
ok sir,i understood.Thanks!
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