Recap of overhead absorption rates
You'll learn how to calculate overhead absorption rates and understand why selecting the right allocation base matters for accurate product costing.
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In this lesson
- 0:00 Overhead Absorption Rate Recap
- 0:50 Choosing the Right Activity Base
- 2:49 Worked Example: Cooper Co Departments
- 4:23 Understanding Under and Over Absorption
- 7:25 Calculating Under Absorption Reconciliation
- 8:57 Multiple Choice: Under Absorption Calculation
About this lesson
This recap covers the formula (total overhead costs divided by a suitable allocation base), how to choose between units, labour hours, or machine hours depending on your production process, and the critical distinction between budgeted and actual figures. You'll also explore under and over absorption—what happens when actual overheads differ from absorbed amounts—and how to adjust your financial statements accordingly using a simple reconciliation method. This is essential knowledge for Performance Management and Management Accounting papers, where overhead allocation questions appear regularly in both objective tests and case studies.
Duration: 11m
Transcript
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