Ch 3 · Overheads — Absorption Costing

5 concept points · 4 formulas · 4 exam-critical points.

📘 Core concepts

• 1Overhead absorption — allocating indirect cost to cost objects via rates.
• 2Methods: % of direct material, direct labour, prime cost, machine hour rate, labour hour rate.
• 3Primary distribution: allocate to departments. Secondary: reapportion service depts to production.
• 4Repeated Distribution / Simultaneous Equation method for inter-service department services.
• 5Under-absorption / over-absorption disposed via supplementary rate, costing P&L, or carry forward.