This article focuses on production overhead absorption using, as an illustration, a question from the December 2005 CAT Scheme Paper 4 examination. Overheads are those costs that cannot be directly allocated to any of the products or services provided by a business to its customers. By refining what may otherwise be an arbitrary process, accountants can provide useful information that will help management in cost control and profitability analysis.
This article focuses on production overhead absorption using, as an illustration, a question from the December 2005 CAT Scheme Paper 4 examination. Overheads are those costs that cannot be d…