Model: Treatment of under-recovery
In a manufacturing unit, the overhead was recovered at a predetermined rate of Rs. 30 per man-day. The total factory overhead expenses incurred and the man-days actually worked were Rs. 65 lakhs and 2 lakhs days, respectively.
Out of the 60,000 units produced during a period, 40,000 units were sold. On analysing the reasons, it was found that 60% of the unabsorbed overheads were due to defective planning and the rest were attributable to the increase in the overhead costs. How would the unabsorbed overheads be treated in cost accounts?
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