Absorption of overhead refers to the process of:
ALoading overhead onto cost units
BAllocating direct cost
CRecording journal entries
DAuditing overhead accounts
Answer & Solution
Correct answer: A. Loading overhead onto cost units
1. After overheads are collected, classified, allocated and apportioned, they must be charged to cost units.
2. This final step is called absorption.
3. Absorption uses a rate per unit, per hour, or per direct cost basis to load overheads onto outputs.
4. Hence absorption is the process of loading overhead onto cost units.
_Source: ICAI BoS Inter Paper 3, Ch 4 "Overheads", §4.5 ¶1_
Related questions
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