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Why aren’t
Over-time premiums
included in the total
production cost when
using absorption
costing. Do we
assume that the our
calculated absorption
rate will included all
over heads once over
heads relating to
production are
calculated?@nigel,
such abnormal activities (as overtime premiums) do not reflect the nature of normal production cycle. If they occur, something went wrong with planning or maybe some unplanned events occur (delay in materials supplies for e.g.). So all overtimes premiums reflect the current situation and current period – thus they should be written-off as expenses of the current period.
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