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by Jul 9, 2017Accounting

Total absorption costing is an accounting method under which we also calculate absorption of factory overhead. This blog is written to help you to the different ways by which you can complete your total absorption costing homework. Before going any further first let me explain what is total absorption costing?Â  It is a method of costing wherein the total cost of manufacturing and providing a service is estimated.

It does not only include within itself the manufacturing labor cost but only the cost of the factory overhead cost. This blog would definitely help you understand better what absorption of factory overhead is. All these days you must be treating it as a very difficult concept, but well, it is not. Well, rather than eating up your head wondering what and how these concepts should be cracked, you can simply refer to manuals as absorption of factory overhead homework answers.

Difference between direct and overhead cost

There are two different types of costs namely the direct and the overhead cost. Direct costs are those costs that are directly incurred and which is a part of the prime cost. Whereas the cost apart from the direct cost forms the overhead costs.

What is the absorption of factory overhead?

Absorption of factory overhead is a technique of accounting. When a job is going through the department of production, its share of overhead should be added. This is known as absorption of the factory overhead. Thus if you are struggling with absorption homework, then you have come to the right place. We would help you with the absorption of factory overhead homework answers.We would also suggest you some methods that you can follow while completing your homework.

Formula to find out the overhead rate

There are some formulas that need to be remembered while doing the absorption of factory overhead homework answers.Being an accountancy student, you know how important these formulas are to solve out your homework. The overhead formula is as followed

The second formula that should be kept in mind is:

Predetermined overhead rate = Estimated manufacturing overhead cost/ Estimated total activity cost.

• The total activity cost includes the labor, labor hour,
• The share of the order of overhead = Overhead Rate x resources consumed

Well, there are some disadvantages of using absorption of factory overhead method that you should know while completing your absorption of factory overhead homework answers. It is not an apt method of accounting for decisions involving internal increment of pricing as it includes the overhead costs.

This makes the comparison with variable cost absurd. It is so because usage of absorption cost would simply increase the net income as more and more items are manufactured. But this increment due to one more unit of production is due to the fixed cost. As the production rises the fixed cost gets evenly distributed between the numbers of products, as a,result in the income increases.

It is often seen that the overhead absorption is not equal to the overhead incurred by the firm. This difference arises because the overhead of a firm doesnâ€™t depend upon the overhead that is incurred but some pre-determined factors.

These predetermined rates are dependent on the historical cost. Historical cost is nothing but the cost that depends on the past accounts. This is why the difference between the overhead incurred, and the overhead absorbs arises.

There are certain assumptions that you have to keep in mind while doing the absorption of factory overhead homework answers. The assumptions are as followed:

• Incurrence-

The factory overhead includes the indirect costs, indirect expenses, indirect materials, etc. that is incurred.Â  Thus recording the factory overhead includes the recording of the elements mentioned above

• Ledger posting-

Another most important thing that is to be understood while doing the absorption of the factory overhead homework answers is the ledger posting. Thus you should be through with the concept of a ledger.

• Under or over absorption of the overheads-

This has been mentioned earlier. The incurred overhead must not be equal to the incurred overhead.