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LMN Limited is a manufacturing concern and recovers overheads at a pre-determined rate of Rs.250 per work-day. The following additional information of a period are also available for you:
Total factory overheads incurred Rs.55,00,000
work-days actually worked 20,000
Sales (in units) 25,000
Stock at the end of the period:
Completed units 2,500
Incomplete units (50% completed) 5,000
Question 1: There was no opening stock of finished goods and works in progress. On analyzing the situation, it was discovered that 40% of the unabsorbed overheads were due to defective planning and balance were attributable to increase in overhead costs. How would you treat unabsorbed overheads in cost accounts?
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