Over-absorbed overhead is disposed off by:
ADebiting finished goods
BDebiting costing P&L
CCrediting WIP
DCrediting costing P&L
Answer & Solution
Correct answer: D. Crediting costing P&L
1. Over-absorption means absorbed exceeds actual; the cost has been over-charged to production.
2. To restore the correct cost, the excess is reversed out of production.
3. The standard treatment is to credit the costing profit and loss account by the over-absorbed amount.
4. Under-absorption is treated symmetrically by debiting the costing P&L.
_Source: ICAI BoS Inter Paper 3, Ch 4 "Overheads", §4.6.3 ¶2_
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