Labour Hour Absorption Rate Formula

Labour Hour Absorption Rate Formula

An absorption rate is calculated on the bases of Labour hour used by the different product is known as Labour hour absorption rate or absorption rate based on Labour hours. This absorption rate may be calculated by dividing production overheads with total number of Labour hours.

Absorption Rate (Labour Hr) = Production Overhead/Total Labour Hours

Labour Hour Absorption Rate Formula Example

Total overhead expenditure is $ 200,000 for two products (A, B). Total production hour is required for production is 10,000 (Hr). Calculate Labour Hour Absorption Rate

Solution

Absorption Rate (Labour Hr) = Production overhead/Total Labour hours

= $ 200,000 (production overhead)/ 10,000 Total Labour Hours

= $ 200,000/ 10,000

= $ 20 (labour hour absorption Rate)