Over/under absorption

emma2009

Can someone try and explain how you work out over/under absorption. I cant get my head around it?

Thanks

jewels.p

I will try.

First you need to calculate the BOAR by dividing the total overheads by eg Labour Hours.

Then in order to calculate overheads absorbed you need to multiply the OAR by the ACTUAL Hours.

Then use the ACTUAL overhead figures and Overhead INCURRED and calculate the difference. If the actual overhead figures are more than overhead incurred it is an under absorption and if it is the other way round it is an over absorption.

I think that is right. I wrote it down in my own words to help me remember.

Is that any use to you?

emma2009

Yes, thanks