Absorption

The production department overheads are absorbed over production
units. The overhead expenses can be absorbed by estimating the overhead expenses and
then working out an absorption rate. When overheads are estimated, their absorption is
carried out by adopting a pre-determined overhead absorption rate. This rate can be
calculated by using any one method as discussed in this chapter at the end.
As the actual accounting period begins, each unit of production automatically absorbs a
certain amount of factory overheads through pre-determined rates. During the year a
certain amount will be absorbed over the various products. This is known as the total
amount of absorbed overheads.