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sir,
iam really confused with over and under absorbed amts.
can u explain it with suitable example when its over and under absorbed overheads ??sir.
can u pleas also explain the difference between actual, budgeted, and absorbed overhead .
Thank you sirIn absorption costing, the absorption rate is calculate by dividing the budgeted fixed costs by the budgeted production to get an absorption rate per unit (or alternatively, dividing the budgeted fixed costs by the budgeted hours to be worked to get an absorption rate per hour). The question will make it clear whether it is based on units or hours.
In the actual profit statement, the total amount absorbed (i.e. charged) will be the actual production units x the absorption rate per unit (or the actual worked hours x the absorption rate per hour (if it is being done in hours)).
This total amount absorbed is then compared with the actual fixed costs for the period. If the amount absorbed is more, then we have over-absorbed. If the amount is less, then we have under-absorbed.
If you have been watching the free lectures (in chapter order) then you will see that I work through examples of calculating the absorption rate, and in a later chapter (on absorption costing) of calculating the over or under absorption. (And I go through more examples in the free revision lectures.)
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