Absorption Rate Formulas

Absorption Rate Formulas

Absorption rate are used to absorb the production overheads. There are number of absorption rates used by the companies. In this article we have given the formulas of some important absorption rates.

Machine Absorption Rate Formula

Machine Absorption rate is calculated by dividing production overhead by the budgeted machine Hrs.

Machine Absorption Rate Formula =   Estimated Production Overhead    x 100                                                                        Budgeted Machine Hrs

 Labour Absorption Rate Formula

Labour absorption rate is calculated by dividing the estimated production overheads by the budgeted machine hours.

Labour Hour Absorption Rate Formula =   Estimated Production Overhead  x 100                                                                         Budgeted Labour Hrs

Product Absorption Rate Formula

Product absorption rate may be calculated by dividing estimated production overheads by budgeted units is to be produced.

Product Absorption Rate Formula =   Estimated Production Overhead    x 100                                                                 Budgeted Production (units)

Over Absorption Formula

Over absorption formula result in, when absorbed overhead (using predetermined absorption rate) are more than actual overheads.

Over Absorption = Absorbed overhead > Actual Overheads

Under Absorption Formula

Under absorption results, when absorbed overhead are less than the actual overheads. It is to be noted that overhead are absorbed with help of predetermined absorption rate.

under Absorption = Absorbed overhead < Actual Overheads