Fixed production overheads for the financial year is 10,000. Normal expected production for the year, after considering planned maintenance and…

If it is considered that there is no quarterly / seasonal variation, therefore normal expected production for each quarter is 500 MT and fixed production overheads for the quarter are - 2,500. Fixed production overhead to be allocated per unit of production in every quarter will be 5per MT (Fixed overheads / Normal production). Quarters Allocations First Quarter Actual fixed production overheads = 2,500Fixed production overheads based on the allocation rate of 5per unit allocated to actual production = 5 x 400 = 2,000Unallocated fixed production overheads to be charged as expense as per Ind AS 2 and consequently as per Ind AS 34 = 500 Second Quarter Actual fixed production overheads on year-to-date basis = 5,000Fixed production overheads to be absorbed on year-to-date basis = 1,000 x 5 = 5,000Earlier,500 was not allocated to production in the 1st quarter. To give effect to the entire - 5,000 to be allocated in the second quarter, as per Ind AS 34,500 are reversed by way of a credit to the statement of profit and loss of the 2nd quarter. Third Quarter Actual production overheads on year-to-date basis = 7,500Fixed production overheads to be allocated on year-to-date basis = 1,500 x 5 = 7,500There is no under or over recovery of allocated overheads. Hence, no further action is required. Fourth Quarter Actual fixed production overheads on year-to-date basis = 10,000Fixed production overheads to be allocated on year-to-date basis 1,900 x 5 = 9,500 500, i.e., [₹ 2,500 – (5x 400)] unallocated fixed production overheads in the 4th quarter, are to be expensed off as per the principles of Ind AS 2 and Ind AS 34 by way of a charge to the statement of profit and loss.Unallocated productions overheads for the year 500 (i.e - 10,000 - 9,500) are expensed in the Statement of profit and loss as per Ind AS 2. The cumulative result of all the quarters would also result in unallocated overheads of 500, thus, meeting the requirements of Ind AS 34 that the quarterly results should not affect the measurement of the annual results.