Absorption of overheads refers to the sharing out of overhead costs to the some cost centers such used the overheads. This is utilized when the overheads cannot be attributed or allocated to a specified cost centre. The aim is to establish the overhead cost per unit of output having apportioned and or allocated overhead costs. The next stage must be to absorb them into the cost of production.
What are the bases of overhead absorption and what issues are considered in their selection?
The first stage in absorption is to establish the absorption rate.