Overtime caused by customer's urgent order should be:
ACapitalised as inventory
BCharged to general overhead
CTreated as costing P&L
DCharged to that customer
Answer & Solution
Correct answer: D. Charged to that customer
1. Treatment of overtime cost depends on the reason for the overtime.
2. When overtime arises specifically due to a particular customer's urgent demand, it is traceable to that order.
3. Accordingly the overtime premium is charged directly to that order or customer.
4. Only overtime arising from general production fluctuations is loaded into overheads.
_Source: ICAI BoS Inter Paper 3, Ch 3 "Employee Cost", §3.5.2 ¶3_
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