Departmental absorption rate
A departmental absorption rate assigns overhead using a separate cost-centre rate and an appropriate base for that centre. It recognises that machining and assembly, for example, may consume resources differently. Calculate each rate from the corresponding overhead and activity totals, then charge a product for its use of each department. All costs and hours must relate to the same period and scope.
Worked example
Machining charges $8 per machine hour and assembly $3 per labour hour. A job using two machining hours and four assembly hours absorbs $16 + $12 = $28.
Common mistake
Do not apply both rates to the job’s total time across all departments or assume every department must use the same base.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |