04 Jan XYZ Ltd., uses a historical cost accounting system
XYZ Ltd., uses a historical cost accounting system and absorbs overheads on the basis of predetermined rates. The following data are available for the year ended 31st March, 2007. Particulars Amount in Rupees Manufacturing overheads Amount actually spent 1,70,000 Amount absorbed 1,50,000 Cost of goods sold 3,36,000 Stock of finished goods 96,000 Work in progress 48,000Using two methods of disposal of under/absorbed overheads show the implication on the profits of the company under each method.a. In a certain factory, three products are made from different materials by similar processes. For a typical period, production costs are as under. Particulars Product A Product B Product C Materials used 1,600 2,000 800 Direct labor cost 1,200 1,000 400 Overheads (Actual) 800 650 350Overheads are charged to the cost of each product @ 25% on Prime Cost. Do you see anything wrong in principle in this method of charging overheads? If so, suggest a preferable method.