Overhead Absorption
Finance
Overhead Absorption
Allocation of indirect costs to products, orders or cost objects using defined rates or drivers.
Examples
- 01Overhead absorption at the plant uses machine hours, so each product carries EUR 45 of overhead for every hour it spends on a machine.
- 02The controller reviews the overhead absorption rates once a year and when volumes change significantly.
- 03When volume falls below plan, overhead absorption is too low and the unabsorbed overhead shows up as a loss, even though spending did not change.