Absorption of Overheads

The cost of making a product or rendering a service is not limited to the direct cost elements of materials, labour, and other direct costs. It is also inclusive of indirect costs that are associated with the production process. These indirect costs are known as Overheads. Failure to account for these would mean that cost is being understated which might entail declaring superficial profit. This class intends to educate students on the Absorption of Overheads, the methods of absorbing overheads and instances where under or over-absorption occurs.