overhead absorption (overhead recovery) is the process whereby overhead costs allocated and apportioned to production cost centres are added to unit, job or batch costs
consiste nel sommare al costo del prodotto, lavoro la percentuale dei costi generali addibiti
overheads are usually added to cost units using a predetermined overhead absorption rate, which is calculated using figures from the budget
viene utilizzato il budget e previsioni dei costi per calcolare la percentuale da utilizzare
overhead absorption rate = overheads for the period budgeted * 100%
total labour cost
fasi
- estimate the overhead likely to be incurred during the coming period
- estimate the activity level for the period. This could be total hours, units, or direct costs or whatever it is on which the overhead absorption rates are to be based
- divide the estimated overhead by the budgeted activity level. This produces the overhead absorption rate
- absorb the overhead into the cost unit by applying the calculated absorption rate
choosing the appropriate absorption base
- percentage of direct materials cost
- percentage of direct labour cost
- percentage of prime cost
- rate per machine hour
- rate per direct labour hour
- rate per unit
- percentage of factory cost (for administration overhead)
- percentage of sales or factory cost (for selling and distribution overhead)
the choice of an absorption basis is a matter of judgement and common sense
what is required is an absorption basis which realistically reflects the characteristics of a given cost centre and which avoids undue anomalies.