Absorption Costing

Question 1

Cost Unit

Answer 1

Products that absorb overheads as they pass through Cost Centres.

Question 2

Cost Centre

Answer 2

Areas of the business that generate indirect costs. (Costs can’t be directly assigned to specific unit of production).

Question 3

4 Stages of Absorption Costing

Answer 3

1) Allocate
2) Apportion (On some equitable basis)
3) Re-Apportion (Service to cost on some equitable basis)
4) Absorb (Overheard Absorption Rates)

Question 4

Labour Intensive Cost Centre

Answer 4

Uses more labour than machines.

Question 5

Capital Intensive Cost Centre

Answer 5

Uses more machines than labour.

Question 6

Overhead Rates

Answer 6

Total Budgeted Overhead (£) / Hours

Question 7

Allocation

Answer 7

When the amount of Overhead is assigned to the obvious Cost Centre.

Question 8

Apportionment

Answer 8

The split of overheads between Cost centres are not obvious so they are apportioned on some equitable basis.

Question 9

Absorption

Answer 9

The process of cost units absorbing overheads from production cost centres as they pass through them.