Overhead Absorption Rate

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:30AM in AAT student discussion
Can anyone explain finding the OAR for unit 6<BR><BR>Many thanks,<BR><BR>Laura

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Overhead Absorption Rate

    In order to absorb the overheads of a department, there are two steps to be followed:- <BR>1. Calculation of the overhead absorption rate (OAR) <BR>2. Application of this rate to actual work done. <BR><BR>The overhead absorption rate is calculated using estimated or budgeted figures for a given time period:- <BR><BR><BR>OAR = total budgeted cost centre overheads / (divided by) total planned work in the cost centre.<BR><BR>The amount of work must be measured in a suitable way, usually:- <BR>Direct labour hours, or <BR>Machine Hours <BR><BR>

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