Question
ABC Ltd. is a manufacturing company that uses the absorption costing method for inventory valuation. The company is facing an issue with its production overhead
ABC Ltd. is a manufacturing company that uses the absorption costing method for inventory valuation. The company is facing an issue with its production overhead allocation, leading to over or under-absorption of overhead costs. The total budgeted overhead costs for the year were $1,500,000, but actual overhead costs amounted to $1,800,000. Discuss the causes of over or under-absorption and their impact on the company's financial statements. Additionally, suggest strategies the company can implement to address this issue and improve its overhead allocation accuracy.
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