CAS 3- Production Overheads

Question 1

Defintion

Answer 1

Indirect cost involved in the production of a product or in providing services

Question 2

Classification

Answer 2

1. Fixed production
2. Variable production
3. Semi- variable production

Question 3

Principles of measurement

Answer 3

1. Procurement of resources- valued- invoice or agreed price including all related exp,taxes,duties net of all credits and refunds. no cash disc
2. POH other than procurement of resources- based on cost incurred in connection there with

Question 4

General Principles

Answer 4

1. Finance cost is not included
2. Abnormal cost is not included
3. Imputed cost is included ( only materials)
4. Depreciation- based on benefit received
5. Credit or recoveries shall be reduced
6. Subsidy, grant or incentives shall be reduced
7. Penalties ,damages, fines paid to stat auth not cost
8. Cost-standard rates- variance is part of cost

Question 5

Assignment of cost

Answer 5

1. While assigning POH, tracability to cost object in a economically feasible manner
2. If direct, Shall be directly asssigned to a cost object.
3. If indirect, shall be assigned based on any one of the two principles
   a) cause and effect
   b) benefits recvd
4. In case of stand by utilities- assigned- expected benefits instead of actual

Question 6

Absorption of POH

Answer 6

1. Variable production OH- absorbed- actuals

2. Fixed production OH - absorbed- normal capacity

Question 7

Presentation

Answer 7

1. POH shalll be presented as a separate cost head and if mat element & behavioral wise if required
2. Any under absorption or over absorption of POH shall be presented in reconciliation statement

Question 8

Disclosure

Answer 8

1. Basis of Assignment
2. Abnormal cost excluded
3. Penalties, damages or fines paid to statutory authorities
   4.