# What is Absorption?

Direct material, direct labour/labor and direct expenses which form part of the prime-cost are all direct costs. They are capable of being allocated (attributed) to the manufacture of a product directly.

Costs apart from the prime cost are collectively called overheads. These costs are not attributed directly to products or services or cost centers. They are attributed by the process of allocation and apportionment of overheads, apportionment being done depending on some rational basis.

We can understand what absorption means, if we go through the process of preparation of a cost sheet. The costs are absorbed in a sequential manner to arrive at the total cost.

## Absorption of

• ### Direct Costs

We first consider the prime cost which is made up of Direct Material, Direct Labor and Direct Expenses. We can say that the direct material, direct labour/labor and direct expenses are absorbed into costs.

We do not use the term absorption being used with regard to direct costs in arriving at prime cost.

We add up factory overheads to prime cost to arrive at factory/works cost.

We can say that Factory Overheads are absorbed into cost to arrive at the factory cost.

We can say that Office/Administrative Overheads are absorbed into cost to arrive at the cost of production.

• ### Selling and Distribution Overheads

We add up selling and distribution overheads to cost of production to arrive at cost of sales.

We can say that Selling and Distribution Overheads are absorbed into cost to arrive at the cost of sales.

Thus, in cost accounting, Absorption can be understood to mean making a part of the cost or total cost.

Absorbed overhead is the amount of overhead cost that is absorbed into total cost based on the predetermined rates of absorption of overheads.

## Absorption is dependent on actuals

The overhead absorbed is always dependent on the actual measure of the factor (output or input or periods) forming the basis for absorption of overhead.
• ## Output

 = Actual Output × Overhead absorption rate per unit of output
• ## Inputs

 = Actual Input × Overhead absorption rate per unit of input or as a % of input value

Any of the following relating to inputs may form the basis for absorption.

### Labour Hours

 = Actual Labour/Labor hours worked × Overhead absorption rate per labour/labor hour

### Direct Wage Cost

 = Actual Direct Wages incurred × Overhead absorption rate as a % of Direct Wages
• ## Periods

 = Actual Periods × Overhead absorption rate per unit period

The costs absorbed are distinct for Variable and Fixed Overheads. Total overheads is generally to be understood as an aggregate of the variable and fixed overheads.

## Overheads are absorbed based on Pre determined rates

The absorption of overheads is not done based on the overheads incurred but based on some predetermined rates for absorption of overheads. The rates at which overheads are to be absorbed are determined based on the historical cost data i.e. data relating to the past accounting periods.

Eg : Factory overheads are 30% of direct wages. Direct costs are generally absorbed on actual basis. Therefore it would be possible to ascertain factory overheads based on direct wages.

Absorprtion of overheads on a pre determined rate basis creates a possibility for a difference between the overheads incurred and overheads absorbed.

## Why can't incurred overheads be absorbed?

Factory overheads include a number of expenses which are varied in nature and magnitude. It consists of all those costs which are incurred in the factory area which are not capable of being appropriated directly.

Eg : Factory rent, indirect materials, indirect wages, depreciation on machinery, factory lighting, heating, consumable stores etc.

The indirect expenses forming part of the overheads are to be apportioned among the various products or services or cost centers based on varied factors.

Eg : Rent of the factory building is apportioned based on the area utilised for the production process of each product, depreciation of machinery is apportioned based on the number of hours of machine use for each product, indirect wages are apportioned based on the direct wage cost of each product etc.

### Non - Availability of Data

The actual overhead cost that is to be attributed to a product can be obtained only after all the expenses/costs involved in overheads are apportioned and distributed among the various products. Most of the information that is used for apportioning overheads can only be obtained towards the end of the accounting period which may delay the process of ascertainment of cost.

If the overhead cost incurred is to form the basis for calculating costs, it would delay the process of ascertaining the cost relating to a product, as it can be ascertained only after the apportionment of overheads is completed. Where an estimate is needed for quoting the price or deciding the sale price etc., it would not be available.

# Costing - Accounting

Accounting for transactions involving Costing are recorded under two different methods.

## Cost Ledger Accounting

Under this method, separate records/books called cost ledgers are maintained for cost accounting. These are independent of financial accounting and all the transactions relevant to cost accounting are recorded in them.

Information that is relevant to financial accounting is pulled from the financial accounting records and recorded again under a methodology similar to self balancing ledgers in financial accounting using a controlling account by name General Ledger Adjustment a/c. Financial accounting records are not influenced in any way by the transactions in the cost ledgers.

Cost Ledgers are self balancing i.e. a trial balance with a list of ledger account balances can be prepared independently for this book and in the absence of any errors the trial balance would agree.

## Integrated Accounting

Under this method, cost accounting and financial accounting are clubbed together, thus the name integrated accounting. Transactions exclusive to cost accounting are also recorded in the same set of books as the transactions relating to financial accounting.

Since there is only one set of books, if at all a trial balance is prepared, it would contain all the ledger accounts (balances) we come across in cost accounting as well as financial accounting.

## Assumption

All the explanations relating to analysis of overhead variances are given under the assumption that separate cost accounting records are being maintained for recording the transactions relevant to costing.

# Recording Transactions - Factory Overhead Incurrence/Absorption

In variance analysis overheads implies manufacturing overheads only. Since we are concerned about only the Factory or manufacturing overheads we will look into transactions relating to absorption of factory overheads only.

# Incurrence

The factory overhead incurred includes the indirect materials, indirect labour, indirect expenses etc., incurred in relation to the factory area. These are charged to the Factory Overhead Control a/c by transfer from the relevant accounts.

Recording factory overheads incurred involves recording the following transactions

1. Indirect Materials issued for the factory
2. Indirect Labor/Labour employed for factory
3. Indirect expenses incurred (paid/payable) for the factory
Journal
Particulars
To Stores Ledger Control a/c
Dr
[For the value of Indirect Materials used for the factory.]
To Wage Ledger Control a/c
Dr
[For the value of Indirect Wages incurred for the factory.]
Dr
[For the value of indirect expenses incurred for the factory.]

## Absorption

Factory overheads are absorbed into Works Cost. This id done by adding up the factory overheads to the Prime-Cost which is collected in the Work-In-Progress Control a/c.

Recording factory overhead absorption involves recording the following transactions

1. Factory Overhead absorbed into production cost
Journal
Particulars
Work-In-Progress Control a/c
Dr
[For the amount of factory overheads absorbed to production i.e. into works cost.]

### Ledger Posting

DrCr
Particulars Amount Particulars Amount

To SLCA a/c
To WLCA a/c
To GLA a/c

By WIP a/c

Since overheads are absorbed based on some pre-determined rates for absorption of overheads the actual overheads incurred may or may not be equal to the overheads absorbed.

This creates a possibility for a difference between the incurred overhead and absorbed overhead.

The difference between the overhead absorbed and incurred is what we identify as the under/over absorbed overhead or the overhead variance.

The reasons for the variance are analysed and depending on whether the variance is normal or abnormal, it is disposed off from the Factory Overhead Control a/c.

Normal part of the variance is transferred to Work In Progress a/c, Finished Goods Ledger Control a/c and Cost of Sales a/c by apportioning it on some rational basis.

Eg : Closing Work in Progress : Closing Finished Goods : Cost of Sales.

Abnormal part of the variance is transferred to the Costing P/L a/c.

# Under Absorption of Factory Overhead

Where the actual overhead incurred is more than the overhead absorbed, we say that the overhead has been under absorbed.

It indicates that cost which should have been normally taken into account has not been absorbed.

DrCr
Particulars Amount Particulars Amount
To SLC a/c
To WLC a/c
To GL a/c
2,00,000
1,45,000
65,000
By WIP a/c
By Balance c/d
4,00,000
10,000
4,10,000 4,10,000
To Balance b/d 10,000 By WIP a/c
By FGLC a/c
By Cost of Sales a/c
By Costing P/L a/c
1,000
1,500
1,500
6,000
10,000 10,000

The Factory Overhead Control a/c shows a debit balance when there is under absorption of overhead indicating that all the expenses incurred have not been taken into account.

The adjustment/correction of this under absorbed overhead would result in a debit balance being transferred from the FOHC a/c to

• WIP a/c and FGLC a/c resulting in the increase in values of closing stocks.
• Cost of Sales a/c resulting in increase of the value of goods sold.
• Costing Profit and Loss a/c resulting in abnormal loss being taken into account.

## Over Absorption of Factory Overhead

Where the actual overhead incurred is less than the overhead absorbed, we say that the overhead has been over absorbed.

It indicates the cost which has been taken into account in excess of normal cost.

DrCr
Particulars Amount Particulars Amount
To SLC a/c
To WLC a/c
To GL a/c
To Balance c/d
2,00,000
1,45,000
65,000
40,000
By WIP a/c 4,50,000
4,50,000 4,50,000
To WIP a/c
To FGLC a/c
To Cost of Sales a/c
To Costing P/L a/c
8,000
6,000
22,000
4,000
By Balance b/d 40,000
10,000 10,000

The Factory Overhead Control a/c shows a credit balance when there is over absorption of overhead indicating that expenses taken into account are in excess of the expenses incurred.

The adjustment/correction of this under absorbed overhead would result in a credit balance being transferred from the FOHC a/c to

• WIP a/c and FGLC a/c resulting in a decrease in values of closing stocks.
• Cost of Sales a/c resulting in a decrease of the value of goods sold.
• Costing Profit and Loss a/c resulting in abnormal gain being taken into account.

# Rates of Absorption of Overheads

The basis chosen for estimating overhead cost is dependent on the overhead in consideration. The same bases may/need not be used for absorption of all types of overheads.

## Common basis of Absorption

Some common bases used for absorption of overheads in the absence of any information to the contrary.

Direct Wages Cost is used as a basis for absorbing Factory Overheads

• ## Selling and Distribution Overheads

Works Cost is used as a basis for absorbing Selling and Distribution Overheads.

Since variance analysis involves only Factory Overheads, we will try knowing the six commonly used rates for absorption of factory overheads.

## Bases for Absorption of Factory/Works/Manufacturing Overheads

The six most common bases for absorption of factory overheads, their derivation and usage is as follows. The bases for absorption can be classified into two as output based and input based.

Prior period data or estimated standard data forms the basis for calculation of the rates.

The actual measure of the factor used for absorbing overheads and the realted pre determined rate form the basis for calculation of the overhead to be absorbed.

### Output Based

• #### Output Unit Rate

Unit Rate for absorption of Factory Overheads

=  Factory Overheads Production in units

Eg : Factory overheads are 24 per unit.

 = Actual Production in Units × Overhead absorption rate (per unit)

### Input (Time) Based

• #### Labour Hour Rate

Labour Hour Rate for absorption of Factory Overheads

=  Factory Overheads Number of Direct Labour Hours

Eg : Factory overheads is 2 per Direct Labor/Labour hour worked.

 = Actual Direct Labour/Labor hours worked × Overhead absorption rate (per labour/labor hour)
• #### Machine Hour Rate

Machine Hour Rate for absorption of Factory Overheads

=  Factory Overheads Number of Machine Hours

Eg : Factory overheads is 5 per Machine hour worked.

 = Actual Machine hours worked × Overhead absorption rate (per Machine hour)

### Input (Cost) Based

• #### Direct Wages Rate or Labour Cost Rate

Direct Wages Rate or Labour Cost Rate for absorption of Factory Overheads

× 100

Eg : Factory overheads are 75% of Direct Wages Cost.

 = Direct Wages Incurred × Overhead absorption rate (as a % of Direct Wages)
• #### Direct Material Rate

Direct Materials Rate for absorption of Factory Overheads

× 100

Eg : Factory overheads are 45% of Direct Material Cost.

 = Direct Material Cost Incurred × Overhead absorption rate (as a % of Direct Materials cost)
• #### Prime-Cost Rate

Prime-Cost Rate for absorption of Factory Overheads

× 100

Eg : Factory overheads are 50% of Prime-Cost.

 = Prime-Cost Incurred × Overhead absorption rate (as a % of Prime-Cost)

### Period Based

• #### Rate per unit period

Period rate for absorption of Factory Overheads

=  Factory Overheads Number of Periods

Eg : Factory overheads are 3,000 per period.

 = Actual Periods Worked × Overhead absorption rate (as a cost per period)

The most common unit period used is a day.

## Which rate is used?

The rate that is used is decided upon based on the circumstances of the case and the primary factor that drives the overhead cost.

Eg : The production process is such that for each laborer/labourer there are 4 helpers (whose cost is indirect cost) in the factory and the overheads consist mostly of indirect labour cost.

The more the laborers/labourers, the more the helpers. The more the helpers, the more the indirect labor/labour cost. The more the indirect labour/labor cost the more the overhead cost.

This indicates that the overhead cost varies as the direct labour cost. In such a situation it would be appropriate to assess the overhead cost based on direct wages, which explains the reason for adopting the direct wage rate of absorption of overhead

## Why are they called Pre-Determined?

The rate of absorption of overheads is decided based on the data relating to the previous periods. It is determined before the actual overhead expenditure is incurred. That is the reason it is called a pre-determined rate.

Eg : During the current period, Factory overheads are to be absorbed @ 75% of direct wages.

This rate of absorption is arrived at by taking the previous periods factory overheads and direct wages into consideration and not the actual cost incurred in the current period. This rate is thus said to be dependent on historical cost.

The overheads during the current period are absorbed or taken into account at this rate.

## AbR = BR

In the absence of information that would lead us to a different conclusion
• basis of absorption = output units
• rate of absorption = budgeted rate

# Finding absorbed overhead using a basis other than that used for absorption

The basis for absorption of overheads is something that is decided upon by the organisation based on a number of factors.

Where we do not know the amount of overhead absorbed, we will be able to identify it if we know the actual measure of the factor used for absorbing overheads and the related rate of absorption of overhead used.

We will also be able to identify the total overhead cost absorbed based on any other factor that can be used for absorbing overheads if we can express the actual measure of the factor based on which the overheads are to be absorbed in the terms of the other factor provided the relevant rate of absorption is available.

## Caution

While using a formula based on a basis other than the one that has been used to absorb overheads, care should be taken not to just replace the factors and rates.

## Absorption based on output

Where overheads have been absorbed based on output units,

= AO × AbR/UO

Actual Output Units × Overhead absorption rate per unit output

### Based on Inputs

Or = SI(AO) × AbR/UI

Standard Input for Actual Output × Overhead absorption rate per unit input

### Based on Periods

Or = SP(AO) × AbR/UP

Standard Periods for Actual Output × Overhead absorption rate per unit period

### Taking time as input and Days as periods

= ST(AO) × AbR/UT

Standard Time for Actual Output × Overhead absorption rate per unit time

Or = SD(AO) × AbR/D

Standard Days for Actual Output × Overhead absorption rate per day

## Note

1. AO × AbR/UO ≠ AI × AbR/UI,

except when AI = SI(AO)

 AO × AbR/UO = SI(AO) × AbR/UI = AI × AbR/UI
2. AO × AbR/UO ≠ AP × AbR/UP,

except when AP = SP(AO)

 AO × AbR/UO = SP(AO) × AbR/UP = AP × AbR/UP

## Absorption based on input

Where overheads have been absorbed based on input,

= AI × AbR/UI

Actual Input × Overhead absorption rate per unit input

### Based on Output

Or = SO(AI) × AbR/UO

Standard Output for Actual Input × Overhead absorption rate per unit

### Based on Periods

Or = SP(AI) × AbR/UP

Standard Periods for Actual Input × Overhead absorption rate per unit period

### Taking time as input and Days as periods

= AT × AbR/UT

Actual Time × Overhead absorption rate per unit time

= SO(AT) × AbR/UO

Standard Output for Actual Time × Overhead absorption rate per unit

Or = SD(AT) × AbR/D

Standard Days for Actual Time × Overhead absorption rate per day

## Note

1. AI × AbR/UI ≠ AO × AbR/UO,

except when AO = SO(AI)

 AI × AbR/UI = SO(AI) × AbR/UO = AO × AbR/UO
2. AI × AbR/UI ≠ AP × AbR/UP,

except when AP = SP(AI)

 AI × AbR/UI = SP(AI) × AbR/UP = AP × AbR/UP

## Absorption based on periods

Where overheads have been absorbed based on periods,

= AP × AbR/UP

Actual Periods × Overhead absorption rate per unit period

### Based on Output

Or = SO(AP) × AbR/UO

Standard Output for Actual Periods × Overhead absorption rate per unit

### Based on Input

Or = SI(AP) × AbR/UI

Standard Input for Actual Periods × Overhead absorption rate per unit input

### Taking time as input and Days as periods

Actual Days × Overhead absorption rate per day

Standard Output for Actual Days × Overhead absorption rate per unit

Standard Time for Actual Days × Overhead absorption rate per unit time

## Note

1. AP × AbR/UP ≠ AO × AbR/UO,

except when AO = SO(AP)

 AO × AbR/UO = SO(AP) × AbR/UO = AO × AbR/UO
2. AP × AbR/UP ≠ AI × AbR/UI,

except when AI = SI(AP)

 AP × AbR/UP = SI(AP) × AbR/UI = AI × AbR/UI

# Illustration - Problem

A production process is budgeted to produce 50,000 units incurring a variable cost of 2,00,000 and a fixed cost of 1,20,000 in 25,000 man hours over a 10 day period. During a period 60,000 units have been produced incurring a variable cost of 2,15,000 and a fixed cost of 1,75,000 in 33,000 hours over 11 days.

Calculate the overheads absorbed based on

• output
• inputs (time)
• periods (days)

Find also the under or over absorbed overhead.

Working table with the data available in the problem

Standard Actual Absorbed
Budgeted
a) Output (units)
b) Periods (Days)
c) Input [Time (man hrs)]
1) Variable
2) Fixed
3) Total
50,000
10
25,000

2,00,000
1,20,000
3,20,000
60,000
11
33,000

2,15,000
1,75,000
3,33,000

The data in this illustration is used in the explanations below.

# Illustration - Working Notes (Calculation of Rates)

Factor for recalculating standards

• for actual output
(AO) =  AO SO
=  60,000 units 50,000 units
= 1.2
• for actual input
(AI) =  AI SI
=  33,000 man hours 25,000 man hours
= 1.32
• for actual periods
(AP) =  AP SP
=  11 days 10 days
= 1.1
Standard Actual
B
Absorbed
C
Budgeted
A
for AO for AI for AP
I) Factor 1.2 1.32 1.1
a) Output (units)
b) Days
c) Time (man hrs)
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
50,000
10
25,000

2,00,000
1,20,000
3,20,000

4
2.4
6.4

8
4.8
12.8

20,000
12,000
32,000
60,000
12
30,000

2,40,000
1,44,000
3,84,000
66,000
13.2
33,000

2,64,000
1,58,400
4,22,400
55,000
11
27,500

2,20,000
1,32,000
3,52,000
60,000
11
33,000

2,15,000
1,75,000
3,33,000

In the absence of information to the contrary, overheads absorption rates are the same as the budgeted rates.

# Overheads absorbed based on output units

 = Actual Output × Absorption Rate per unit

Variable

 = AO × AbR/UO(V) = 60,000 units × 4/Unit = 2,40,000

Fixed

 = AO × AbR/UO(F) = 60,000 units × 2.4/Unit = 1,44,000

Total

 = Variable + Fixed = 2,40,000 + 1,44,000 = 3,84,000 Or = AO × AbR/UO(T) = 60,000 units × 6.4/Unit = 3,84,000
Standard Actual
B
Absorbed
C
Variance
C − B
Budgeted
A
for AO for AI for AP
I) Factor 1.2 1.32 1.1
a) Output (units)
b) Days
c) Time (man hrs)
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
50,000
10
25,000

2,00,000
1,20,000
3,20,000

4
2.4
6.4

8
4.8
12.8

20,000
12,000
32,000
60,000
12
30,000

2,40,000
1,44,000
3,84,000
66,000
13.2
33,000

2,64,000
1,58,400
4,22,400
55,000
11
27,500

2,20,000
1,32,000
3,52,000
60,000
11
33,000

2,15,000
1,75,000
3,33,000

2,40,000
1,44,000
3,84,000

25,000
26,000
51,000

## Calculation based on Input (time)

 = Standard Input for Actual Output × Absorption Rate per unit input = Standard Time for Actual Output × Absorption Rate per unit time

Variable

 = ST(AO) × AbR/UT(V) = 30,000 man hrs × 8/man hr = 2,40,000

Fixed

 = ST(AO) × AbR/UT(F) = 30,000 man hrs × 4.8/man hr = 1,44,000

Total

 = Variable + Fixed = 2,40,000 + 1,44,000 = 3,84,000 Or = ST(AO) × AbR/UT(T) = 30,000 man hours × 12.8/man hr = 3,84,000

## Calculation based on Periods (days)

 = Standard Periods for Actual Output × Absorption Rate per unit period = Standard Days for Actual Output × Absorption Rate per day

Variable

 = SD(AO) × AbR/D(V) = 12 days × 20,000/day = 2,40,000

Fixed

 = SD(AO) × AbR/D(F) = 12 days × 12,000/day = 1,44,000

Total

 = Variable + Fixed = 2,40,000 + 1,44,000 = 3,84,000 Or = SD(AO) × AbR/D(T) = 12 days × 32,000/day = 3,84,000

# Overheads absorbed based on input (time)

 = Actual Input × Absorption Rate per unit input = Actual Time × Absorption Rate per unit time

Variable

 = AT × AbR/UT(V) = 33,000 man hrs × 8/man hr = 2,64,000

Fixed

 = AT × AbR/UT(F) = 33,000 man hrs × 4.8/man hr = 1,58,400

Total

 = Variable + Fixed = 2,64,000 + 1,58,400 = 4,22,400 Or = AO × AbR/UO(T) = 33,000 man hrs × 12.8/man hr = 3,84,000
Standard Actual
B
Absorbed
C
Variance
C − B
Budgeted
A
for AO for AI for AP
I) Factor 1.2 1.32 1.1
a) Output (units)
b) Days
c) Time (man hrs)
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
50,000
10
25,000

2,00,000
1,20,000
3,20,000

4
2.4
6.4

8
4.8
12.8

20,000
12,000
32,000
60,000
12
30,000

2,40,000
1,44,000
3,84,000
66,000
13.2
33,000

2,64,000
1,58,400
4,22,400
55,000
11
27,500

2,20,000
1,32,000
3,52,000
60,000
11
33,000

2,15,000
1,75,000
3,33,000

2,64,000
1,58,400
4,22,400

49,000
40,400
89,400

## Calculation based on Output units

 = Standard Output for Actual Input × Absorption Rate per unit input = Standard Output for Actual Time × Absorption Rate per unit time

Variable

 = SO(AT) × AbR/UO(V) = 66,000 units × 4/unit = 2,64,000

Fixed

 = SO(AT) × AbR/UT(F) = 66,000 units × 2.4/Unit = 1,58,400

Total

 = Variable + Fixed = 2,64,000 + 1,58,400 = 4,22,400 Or = SO(AT) × AbR/UO(T) = 66,000 units × 6.4/unit = 4,22,400

## Calculation based on Periods (days)

 = Standard Periods for Actual Input × Absorption Rate per unit period = Standard Days for Actual Time × Absorption Rate per day

Variable

 = SD(AT) × AbR/D(V) = 13.2 days × 20,000/day = 2,64,000

Fixed

 = SD(AT) × AbR/D(F) = 13.2 days × 12,000/day = 1,58,400

Total

 = Variable + Fixed = 2,64,000 + 1,58,400 = 4,22,400 Or = SD(AT) × AbR/D(T) = 13.2 days × 32,000/day = 4,22,400

# Overheads absorbed based on periods

 = Actual Periods × Absorption Rate per unit period = Actual Days × Absorption Rate per day

Variable

 = AD × AbR/D(V) = 11 days × 20,000/day = 2,20,000

Fixed

 = AD × AbR/D(F) = 11 days × 12,000/day = 1,32,000

Total

 = Variable + Fixed = 2,20,000 + 1,32,000 = 3,52,000 Or = AD × AbR/D(T) = 11 Days × 32,000/day = 3,52,000
Standard Actual
B
Absorbed
C
Variance
C − B
Budgeted
A
for AO for AI for AP
I) Factor 1.2 1.32 1.1
a) Output (units)
b) Days
c) Time (man hrs)
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
1) Variable
2) Fixed
3) Total
50,000
10
25,000

2,00,000
1,20,000
3,20,000

4
2.4
6.4

8
4.8
12.8

20,000
12,000
32,000
60,000
12
30,000

2,40,000
1,44,000
3,84,000
66,000
13.2
33,000

2,64,000
1,58,400
4,22,400
55,000
11
27,500

2,20,000
1,32,000
3,52,000
60,000
11
33,000

2,15,000
1,75,000
3,33,000

2,20,000
1,32,000
3,52,000

5,000
14,000
19,000

## Calculation based on Output

 = Standard Output for Actual Periods × Absorption Rate per unit output = Standard Output for Actual Days × Absorption Rate per unit output

Variable

 = SO(AD) × AbR/UO(V) = 55,000 units × 4/unit = 2,20,000

Fixed

 = SO(AP) × AbR/UO(F) = 55,000 units × 2.4/Unit = 1,32,000

Total

 = Variable + Fixed = 2,20,000 + 1,32,000 = 3,52,000 Or = SO(AD) × AbR/UO(T) = 55,000 units × 6.4/unit = 3,52,000

## Calculation based on Input (time)

 = Standard Input for Actual Periods × Absorption Rate per unit input = Standard Time for Actual Days × Absorption Rate per unit time

Variable

 = ST(AP) × AbR/UT(V) = 27,500 man hrs × 8/man hr = 2,20,000

Fixed

 = ST(AP) × AbR/UT(F) = 27,5000 man hrs × 4.8/man hr = 1,32,000

Total

 = Variable + Fixed = 2,20,000 + 1,32,000 = 3,52,000 Or = ST(AP) × AbR/UT(T) = 27,500 man hrs × 12.8/man hr = 3,52,000