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Discuss Overhead Absorption and its illustration

Discuss Overhead Absorption and its illustration

Answers

Faith
Having allocated and apportioned the overhead, the next step is to add them to the cost of production or cost of sales. The production overheads are added to the cost of production though the work in progress accounts and therefore would be concluded in the stocks finished goods and any unfinished working progress at the end of the accounting period.

The absorption of production overheads into factory costs should be done on a fair basis. Examples of the bases that could be used are:
1. Percentage of direct material costs
2. Percentage of direct labour costs
3. Percentage of prime costs
4. As a rate for machine hour
5. As a rate per direct labour hour
6. As a rate per unit

Illustration
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Titany answered the question on October 12, 2021 at 07:12

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