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Chapter III,[object Object],Absorption of Overheads,[object Object]
Definition of Absorption,[object Object],Absorption is, ”the process of absorbing all overhead costs allocated or apportioned over a particular cost centre or production department by the units produced “- CIMA,[object Object],CAS 3 of ICWAI defines it as, “charging of overheads from cost centres to products or services by means of absorption rates for each cost center”,[object Object]
Methods of Absorption of Overheads ,[object Object],Production Unit Method:,[object Object], Absorption Rate=,[object Object]
2.Percentage of Direct Material Cost Method,[object Object],Absorption Rate =  ,[object Object]
3.Percentage of Direct Labour Cost Method,[object Object],Absorption Rate=,[object Object]
4. Percentage of Prime Cost Method,[object Object],Absorption Rate=,[object Object]
5. Labour Hour Method,[object Object],Absorption Rate =,[object Object]
6.Machine Hour Rate Method,[object Object],Absorption Rate=,[object Object]
Advantages of Machine Hour Rate Method,[object Object],Scientific Method,[object Object],Measurement of Time of Actual Working,[object Object],Measurement of Idle Time,[object Object],Comparison of cost and efficiency of different machines,[object Object]
Disadvantages,[object Object],Additional Work,[object Object],Additional Cost,[object Object],Not Suitable for Labour Intensive Industry,[object Object],Method not suitable when machine Hours can not be calculated,[object Object]

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Absorption Of Overheads-B.V.Raghunandan

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