Absorption Costing Flashcards
Define the term absorption costing
A method which seeks to charge a fair proportion of overhead cost to a unit of production.
Define the term variable costs
Costs which changes with different levels of output of production
Define the term fixed costs
Costs that stay the same, irrespective of the level of output of production
Define the term allocation
The process of identification of overheads with cost centres
An expense which is directly identifiable with a specific cost centre is allocated to that centre
Define the term cost apportionment
The allotment of proportions of items to cost centres or cost units on an equitable basis
How is direct labour hour calculated?
How is direct machine hour rate calculated?
How is unit cost rate calculated?
Define over absorption of overheads
The excess of overheads absorbed over the actual amount of overheads incurred
When the amount absorbed is more than the expenditure incurred
Define the under absorption of overheads
The amount of overheads absorbed in the production is less than the amount of overheads incurred
