absorption rate


absorption rate
= overhead absorption rate; = recovery rate
The rate or rates calculated in an absorption costing system in advance of an accounting period for the purpose of charging the overheads to the production of that period. Absorption rates are calculated for the accounting period in question using the following formula:
budgeted overhead/budgeted production.
In absorption costing production may be expressed in a number of different ways; the way chosen to express production will determine the absorption rate to be used. The seven major methods of measuring production, together with their associated absorption rate, are given in the table below. The rate is used during the accounting period to obtain the absorbed overhead by multiplying the actual production achieved by the absorption rate.
These rates have been used by accountants for over a century and they are still widely applied. Many, however, would argue that they cannot provide the accurate cause-and-effect allocations of costs that modern managers require; for this a system of activity-based costing must be used.

Accounting dictionary. 2014.

Look at other dictionaries:

  • absorption rate — ➔ rate1 * * * absorption rate UK US noun [C] ► (also overhead absorption rate, also recovery rate) ACCOUNTING the percentage of fixed costs (= costs that are the same each month) that a company pays for with the profits from particular products… …   Financial and business terms

  • absorption rate — overhead absorption rate; recovery rate The rate or rates calculated in an absorption costing system in advance of an accounting period for the purpose of charging the overheads to the production of that period. Absorption rates are calculated… …   Big dictionary of business and management

  • Absorption Rate — The rate at which available homes are sold in a specific real estate market during a given time period. It is calculated by dividing the total number of available homes by the average number of sales per month. The figure shows how many months it …   Investment dictionary

  • absorption rate — Fin see overhead absorption rate …   The ultimate business dictionary

  • absorption rate — /əb zɔ:pʃən reɪt/ noun a rate at which overhead costs are absorbed into each unit of production …   Dictionary of banking and finance

  • Absorption rate — Скорость поглощения, скорость впитывания …   Краткий толковый словарь по полиграфии

  • Specific absorption rate — (SAR) is a measure of the rate at which radio frequency (RF) energy is absorbed by the body when exposed to radio frequency electromagnetic field. It is defined as the power absorbed per mass of tissue and has units of Watts per kilogram [cite… …   Wikipedia

  • overhead absorption rate — UK US noun [C] ► ACCOUNTING ABSORPTION RATE(Cf. ↑absorption rate) …   Financial and business terms

  • fixed overhead absorption rate — The budgeted fixed overheads divided by the budgeted standard hours, budgeted production in units, or other budgeted production measure. See: absorption rate …   Accounting dictionary

  • overhead absorption rate — See: absorption rate …   Accounting dictionary


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.