ABSORPTION

 Absorption : 

• After completing the distribution as stated above the overheads charged to department are to be recovered from the output produced in respective departments. This process of recovering overheads of a department or any other cost center from its output is called recovery or absorption.
• The overhead expenses can be absorbed by estimating the overhead (as assigned above) and then working out an absorption rate. When overheads are estimated, their absorption is carried out by adopting a pre-determined overhead absorption rate. This rate can be calculated by using any one method as discussed in this chapter at the end. 
• As the actual accounting period begins, each unit of production automatically absorbs a certain amount of factory overheads through pre-determined rates. During the year a certain amount will be absorbed over the various products. This is known as the total amount of absorbed overheads.