Model: Unabsorbed overheads and Supplementary rate
The total overhead expenses of a factory are Rs. 4,50,000. Taking into account the normal working of the factory, the overhead was recovered from production at Rs.1.40 per hour. The actual hours worked were 2,80,000. How would you proceed to close the books of accounts, assuming that besides the 4,500 units that were produced of which 3,800 were sold, there were 500 equivalent units in WIP. On investigation, it was found that 50% of the unabsorbed overhead was on account of increase in the cost of indirect material and indirect labour and the other 50% was due to the factory’s inefficiency.