Accounting (AS)·Overheads · NSSCAS 5.1.2
Absorption rates; over & under absorption
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Overheads only become useful once they land inside the cost of a job. In this lesson you learn to calculate the three absorption rates, use them to build the full cost and selling price of a job, and then check at year end whether overheads were over or under absorbed. This is one of the most dependable calculation questions in Paper 2 — formula, substitution, answer.
What you'll learn in this lesson
By the end you should be able to (NSSCAS Accounting (AS) 5.1.2):
- calculate the following absorption rates: direct labour hour rate, machine hour rate, unit cost rate
- apply the absorption rates to calculate the full cost and determine the profit
- explain over and under absorption of overheads
- explain the causes of over and under absorption of overheads
- calculate over and under absorption of overheads
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