Treatment of over and under absorption of overheads

After the year end the total
amount of actual factory overheads is known. There is bound to be some difference
between the actual amount of overheads and the absorbed amount of overheads. The
difference has to be adjusted keeping in view of such differences and the reasons
therefor.
Students will thus see that the whole discussion as above is meant to serve the following
two purposes :
(a) to charge various products and services with an equitable portion of the total amount
of factory overheads ; and(b) to charge factory overheads immediately as the product or the job is completed
without waiting for the figures of actual factory overheads.