Can somebody please explain the concept of supplementary overhead rates, it's application and why is it used ?
With best regards.
1 Replies
Shubham kumar
(.)
(620 Points)
Replied 10 February 2014
When there is undervaluation of Overhead then we calculate undervaluation overhead Rate or it's called supplementary Rate.
Undervaluation may be due to *Seasonal variation or *Faulty planning of Management. (transferred to P/L)
So, to cover undervaluation we use supplementary rate.
Eg. If 1000 unit of products is produced and 600 is sold and let undervaluation of OH is Rs.20,000 then OH rate comes Rs.20. So 600*20=12000 Will be transferred to P/L and Balance 400unit *20= 8000 we will increase price by 8000 of 400 units to recover Under absorption.
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