Over and Under Absorption of Overheads

Overhead expenses are those expenses which cannot be easily traced or allocated to the product which is being manufactured and therefore they are added to the total cost of production when it comes to allocation of such expense. Companies usually decide the amount in advance for overhead expenses and that leads to over or under absorption of overhead.

Over absorption of overhead happens when the actual expense incurred by a company is less than estimated overhead while under absorption of overhead happens when the actual expense incurred by a company is more than estimated by the company in the budget. There are many causes behind over/under absorption of overhead like output being more or less than planned or price fluctuation in the raw material and so on.

Close look at the variance can be quite be useful for a company because it will help the company in future in controlling the factors which have lead to such disparity and therefore leading to better cost control and cost reduction by the company.

0 comments… add one

Leave a Comment

Related pages

exchange rate quotationssecuritizing receivablesadvantages and disadvantages of social media advertisingmarginal costing advantagesdeflation cycledifference between accounts receivable and payableproblems of barter systemadvantages and disadvantages of borrowing money from a bankinelastic products exampleswhat is the difference between systematic risk and unsystematic riskacronym fmcgtutor2u competitioninvestment appraisal methods advantages and disadvantageshypothecation exampleconsignee definitionadvantages of deflationwhat is current assets and current liabilities with examplejournal entry for prepaid expensewhat is mixed economieslong term sources of finance advantages and disadvantageslocational arbitrage exampleoligopoly disadvantagesprofit ratiosfund flow cash flowbill discounting without recoursewhat is endorseedcf valuation methodbenefits of convertible bondsdifference between autonomous investment and induced investmentdifference between draft and chequepayback period advantages and disadvantagesprivatization advantagesadvantages of barter tradewholesale banking vs retail bankingeconomics substitutes and complementscomplementary goodsdisadvantages of capitalismwhat is an autocratic leadership stylecarriage inwards definitioncharacteristics of capitalist economic systemjournal entry for salary paidfunctions of derivative marketfull form of bhelprofibility ratiosubstitutes and complements in economicserror of omission in accounting examplewhat are the differences between horizontal analysis and vertical analysisadvantages of a planned economydistinguish between joint venture and partnershipsole proprietorship features advantages and disadvantageswhat is the difference between tariff and quotahindi meaning of omissionlimitation of managerial economicscapital goods vs consumer goodsdisadvantages of lifoconservatism principle in accountingadvantages of a traditional economystate the law of diminishing marginal utilityamortization expense journal entrycarriage inwards and outwardsdisadvantages of carbon creditsfictitious assetscommercial paper pptcapital account convertibilitywhat is an unqualified audit opiniondisadvantages of stock dividendsbarter system meaningbenefits of jit manufacturingwhat are the advantages and disadvantages of a mixed economydecentralized decision making advantages and disadvantagesadvantages and disadvantages of traditional bankinglong term bank loan advantages and disadvantagesnondurable goods definition