With the help of allocation and apportionment, the different production departments get their due share of the total production overheads. After that, the process of absorption starts. The overheads of a particular department are to be allotted to the production units of the department. This allotment to the unity is absorption.
Ability to Pay Principle, Efficiency or Incentive principle
Overheads is to recover or absorb the overheads in the cost of products, individual jobs, processes, batches, or other convenient units. The overheads falling to the share of a department through the process of allocation or apportionment, is to be absorbed by the cost units of that department. This is known as ‘Absorption of overheads’.
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