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Basic introduction of over absorption and under absorption of factory overheads
Whenever the planned level of activity and the actual level of activity is not same then there is always an over or under absorption situation. Over absorption happens when total overhead absorbed is bigger than the actual level of overheads for the period. And the under absorption happens when the total overhead absorbed is smaller than the actual level of overheads incurred for the overall period. The different ways that the treatment of over or under absorption overhead can be done.

  • The amount which can be carried forward that means to the next period’s account
  • Amounts may be written by calculating the costing of profit and loss
  • In case of production a supplementary rate be worked out and applied
  • Online help for over and under absorption of factory overheads

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