Under Absorption and Over Absorption of Factory Overheads Homework Help
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What is an over absorption and under absorption of overhead cost?
Except for direct material, direct labor and direct expenses the other cost combined are termed as overhead costs. At the time of a firm utilizing a standard costing method, a standard amount of overhead charges are assumed that could incur in coming accounting period. These are usually applied to cost objects. If in any case the actual amount of overhead shows variation from the standard amount of overhead, then the overhead is called as either over absorbed or under absorbed. In this article for under absorption and over absorption of factory overheads homework help we discuss the same.
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Significance of under absorption and over absorption
Our Under absorption and over absorption of factory overheads homework help article writers have listed a few points that signify the importance.
• If actual over head cost surpasses the expected over head cost then the over head is under absorbed. Under absorption and over absorption of factory overheads homework help article mentions it clearly.
• In this case the profit is reduced as the recognition of expense becomes high.
• If expected over head cost surpasses the actual over head cost then the over head is over absorbed.
• In this case the recognition of expense is reduced and the profit is increased.
Reasons for over and under absorption for overheads as per our Under absorption and over absorption of factory overheads homework help article
• The amount of over head expected is different from that incurred.
• When the Standard rate is based on long term average
• Any data entry or calculative error gives incorrect allocation basis.
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