Over Absorption Formula

Over Absorption Formula

Over absorption result because absorption rate used by the organization due to technical reason i.e. actual information about cost is not available at time of production.

The use of predetermined rate may result in over or under absorption. When absorbed overhead are more than actual overheads, this is over absorption situation or case.

Over Absorption = Absorbed overhead – Actual Overheads

Over Absorption Formula Example

A product takes 5000 hr machine hour. The absorption rate was $ 5 per machine hour. Actual production overheads were $ 22,000. Calculate over or under absorption.

Absorbed overhead

(5000 hr x 5 per hour) =     $ 25,000

Less: Actual overheard    = $ 22,000

Over absorbed =                 $ 3,000