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

Product Absorption Rate Formula

Product Absorption Rate Formula

An absorption rate is calculated on the bases of number of unit produced is known as Product absorption rate or absorption rate based on Product. This absorption rate may be calculated by dividing production overheads with total number of units produced (units of different product).

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

Product Absorption Rate Formula Example

Total overhead expenditure is $ 300,000 for two products (A, B). Total production of both products is (50,000 units). Calculate Product Absorption Rate

Solution

Absorption Rate (Labour Hr) = Production overhead/Total units Produced

= $ 300,000 (production overhead)/ 50,000 Total Products

= $ 300,000/ 50,000

= $ 6 (product absorption Rate)

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)

Machine Hour Absorption Rate Formula

Machine Hour Absorption Rate Formula

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

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

Machine Hour Absorption Rate Formula Example

Total overhead expenditure is $ 150,000 for two products (A, B). Total production hour is required for production is 10,000 (Hr). Calculate machine Hour Absorption Rate

Absorption Rate (Machine Hr) = Production overhead/Total machine hours

= $ 150,000 (production overhead)/ 10,000 Total Machine Hours

= $ 150,000/ 10,000

= $ 15