Over Absorption Formula

Over Absorption Formula

Over Absorption = Absorbed overhead – Actual Overheads

Over Absorption Formula Example

Machine Hour = 6000

Absorption Rate = $ 6

Production Overhead (Actual) = 25,000

Solution

Absorbed Overhead = Hr x Absorption Rate

= 6000 hr x 6 = 36,000

Over absorption = 36,000-25,000

=11,000 (Over absorption)

 Reasons of Over Absorption

Over absorption result, because companies use predetermined absorption rate, while actual overhead may differ from the absorbed overheads.

 Over and under absorption

When absorbed overhead are more than actual overhead, then this is over absorption situation, when absorbed overhead are less than actual overhead, then this is under absorption situation.

Absorbed Overheads > actual Overheads = over absorption overheads

Absorbed Overheads < actual Overheads = under absorption overheads