Over And Under Absorption of Production Overhead Costs, Cost Accounting

Over And Under Absorption of Production Overhead Costs

This may be analyzed beneath

a) Activity

This is level of the business or cost center. Expenditure on several items of production overhead costs will vary directly along with activity whereas others will be fixed irrespective of the changes in activity level. As an example, in a machine orientated, power cost and cost center will vary in proportion to machine hours where salary of the cost center manager will be fixed.

b) Level of expenditure on production overhead

Expenditure level might change from the budgeted level since of a change in the price of a change in the usage or an overhead item of the overhead item

c) Activity absorption and level of production overhead cost

In the table underneath the variable overhead absorbed per machine hour is constant as Shs.3 irrespective of the activity level. So the fixed overhead cost per machine hour depends on the activity level used as the base. If 100 machine hours are utilized, Shs.5 per machine hour should be charged in order to absorb the fixed overhead cost of Shs.500. and if 300 machine hours are utilized, Shs.1.67 per machine hour is an enough charge in order to absorb the net fixed overhead cost.

Diagram of Machining cost center

 Activity level

 Machine hrs


 Total fixed

 Overhead costs

 Total variable

 Overhead costs

 Total overhead  cost








C ost per













































Production overheads will be absorbed via jobs or products at the previously determined rater per machine hour.

If the real number of machine hours utilized differs from the number utilized in the computation of the overhead absorption rate, an over or beneath absorption will happen.

Note that this problem does not happen along with variable overheads as the incidence of the cost such like power cost varies along with changes in activity.

Posted Date: 2/5/2013 7:25:02 AM | Location : United States

Related Discussions:- Over And Under Absorption of Production Overhead Costs, Assignment Help, Ask Question on Over And Under Absorption of Production Overhead Costs, Get Answer, Expert's Help, Over And Under Absorption of Production Overhead Costs Discussions

Write discussion on Over And Under Absorption of Production Overhead Costs
Your posts are moderated
Related Questions
Amanda Deal, president of XYZ, had recently finished an arduous round of meetings with her financial staff". Those meetings dealt with the details necessary to produce an accurate

The following information pertains to Tudor Logistics Company: 200X Information: Sales                                      $4,875,000 Selling expense

creating a decision treeplan.

What does the cost principle mean for a company's income statement?

Flying High Company manufactures model airplanes. During the month, it manufactured 10,000 airplanes. Each one used an average of 6.5 direct labor hours and an average of 1.5 sheet

MARGINAL COSTING As per the Chartered Institute of Management Accountants, London, the phrase 'Marginal cost' means - 'the amount at every given volume of output through which

Calculate the β of Maine Corporation from the following data. The prices are at the beginning and at the end of each year     Normal 0 false false

Ask What is the major value of the weighted cost of capital calculation for the firm? question #Minimum 100 words accepted#

The vice president of operations of six layer computer Inc. is evaluating the performance of two divisions organized as investments centers. Invested assets and condensed income st