The key points that follow are intended to complement the this chapter of the textbook, Cost Accounting Principles and Practice

These points are not intended to provide revision notes; nor are they a summary of chapter content. Rather they indicate potential areas of difficulty where particular care is needed when answering exam questions.

• Procedures for overhead absorption can appear long and involved. You need to try and keep sight of the ultimate purpose - i.e. determination of an overhead cost per unit of product/service.
• Remember that many apportionment/reapportionment bases are likely to be somewhat arbitrary. This may be especially true of exam questions where information will probably be extremely limited.
• Changes to apportionment/reapportionment bases, to the methodology of secondary distribution and to the absorption rate, can have a marked effect on unit costs.
• When re-apportioning service cost centre overheads, be careful with the percentages you apply. These should relate only to those cost centres receiving a share of the overhead being re-apportioned.
• In most exam situations, overhead absorption rates should be based on budgeted figures for overhead cost and for labour hours, machine hours etc (i.e. predetermined rates should be used).
• Over- and underabsorptions stem from comparison of overhead absorbed with overhead incurred (not budget -v- actual expenditure).
• Non-production overheads like administration and selling costs are not included in stock values. Absorption rates for such overheads may, however, be calculated in order to obtain total cost per unit of product/service. The resultant total cost/unit could be used as part of the price-setting process.

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