A company absorb overheads based on output levels. During the period the company over-absorbed overheads by GH¢6000 based on 5000 budgeted units. The actual overhead cost for the period is GH¢34000. The company estimates that the total of direct material and direct labour cot for producing a unit of the product is GH¢50. Which of the following statement is correct?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
A company absorb overheads based on output levels. During the period the company over-absorbed overheads by GH¢6000 based on 5000 budgeted units. The actual overhead cost for the period is GH¢34000. The company estimates that the total of direct material and direct labour cot for producing a unit of the product is GH¢50. Which of the following statement is correct?
A. The gross profit will fall as a result of the over-absorption since the prime cost will increase
B. Cost of sales increase hence reducing the net profit
C. The over-absorbed overhead of GH¢6000 will increase the net profit
D. Cannot be determined without further details
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