METHODS OF ABSORBING OVERHEADS TO VARIOUS PRODUCTS OR JOBS

Before we describe various methods, it would be better to know how to judge whether a
method will give good results or not. The method selected for charging overheads toproducts or jobs should be such as will ensure :
(i) that the total amount charged (or recovered) in a period does not differ materially
from the actual expenses incurred in the period. In other words, there should not be
any significant over or under recovery of overhead; and
(ii) that the amount charged to individual jobs or products is equitable. In case of factory
overhead, this means :
(a) that the time spent on completion of each job should be taken into
consideration;
(b) that a distinction should be made between jobs done by skilled workers and
those done by unskilled workers. Usually, the latter class of workers needs more
supervision, causes greater wear and tear of machines and tools and waste a
larger quantity of materials.