An entity has 2 segments, Segment A and Segment B. Segment B has its own customers and also renders captive transfer requirements to Segment A. Captive transfers are made from Plant X of Segment B. Management reviews Gross margins of respective segments to assess the performance.
During the period it was noted that while Plant X is cartering both external customers and captive transfers, there are certain unabsorbed overheads at Plant level. can the entity allocate this unabsorbed Overheads as well to Segment A as part of cost of transfer or consider only absorbed overheads ?
Is there any guidance to evaluate this aspect ?
Under absorbed over head
Re: Under absorbed over head
It's possible to allocate Plant X's overheads to both segments. In general, you should report this as it is reported to chief operating decision maker (‘CODM’).