produnction costing (absorption costing)

premium overheads? what are they?

i will give u an overview though:

there are 2 points in time when OH is allocated:

first is at the time of making a budget. as u know, budget is an estimate, however accurate it may be. at the time for budgeting, the absorption rate is calculated and and it gives a figure to be added to the cost of the product. this way, we can compute cost/unit and set selling prices.

second is when the accounting period is over. at this point ACTUAL results are in. thus, the actual overheads are compared to what were absorbed (allocated) to the product.

the difference between the absorbed costs and actual costs incurred is known as over or under absorbed overheads.

over absorbed OH means that the budget absorbed more overheads than the actual OH incurred.

under absorbed OH means that the budget absorbed less OH than actual OH expense incurred.

hope this helps

if u have further questions, feel free to ask