y53 Determination of Underabsorbed Overhead Expenses Total expenses incurred in August 18,00,000 Less amount paid as per Labour Court award (assumed to be abnormal expense) 1,50.000 Less expenses paid related to previous year 50.000 Overhead expenses relating to current month 6,00.000 Less overheads recovered (10.000 machine-hours x 150) 5,00.000 Underabsorbed factory overheads 1,00,000 Treatment of underabsorbed overheads in cost accounts 1. 60 per cent of underabsorbed factory overheads 1,00,000) is attributed to defective planning. Being abnormal in nature, the amount of 60,000 is to be charged to costing profit and loss account 2. Balance 40 per cent of underabsorbed factory overheads is prorated between cost of sales (30,000 units) and finished goods inventory (10,000 units). Accordingly, 340,000 distribution between the two is as follows: Cost of sales +30.000 Finished goods 10.000 340.000 Total unabsorbed overheads (+60,000 + 340,000) 1,00,000 P.10.18 ABC Ltd manufactures a single product and absorbs the production overheads at a predetermined rate of 100 per machine-hour. At the end of current financial year, it has been found that actual production overheads incurred were 36,00,000. It included 345,000 on account of written off obsolete stores and 830,000 being the wages paid for the strike period under an award. The production and sales data for the current year is as under: Production: Finished goods (units) 20,000 Work-in-progress (50% complete in all respects) (units) 8,000 Sales: Finished goods (units) 18,000 The actual machine-hours worked during the period were 4,800. It has been found that one-third of the under-absorption of production overheads was due to lack of production planning and the rest was attributable to normal increase in costs. You are required to: (1) Calculate the amount of under-absorption of production overheads during the current year, and (ii) Show the accounting treatment of under-absorption of production overheads