Welcome, Cambridge A Level Accounting students, to our informative video on overhead absorption rate in absorption costing! In this tutorial, we'll explore the concept of overhead absorption rate and its significance in allocating overhead costs to products or services.
In simple terms, the overhead absorption rate is a predetermined rate used to allocate overhead costs to units of production based on a chosen allocation base. This rate is calculated by dividing budgeted overheads by the budgeted activity level. This video aims to help you understand the:
1. Overhead Absorption Rate: You'll learn what overhead absorption rate is and how it helps in distributing overhead costs across units of production.
2. Budgeted Overheads: We'll discuss the concept of budgeted overheads, which are the estimated overhead costs for a specific period based on the organization's budget.
3. Budgeted Activity: You'll understand the significance of budgeted activity, which refers to the estimated level of activity (such as machine hours, labor hours, or units produced) expected during the budgeted period.
Throughout the video, we'll illustrate how to calculate the overhead absorption rate using a simple formula and demonstrate its application in allocating overhead costs to products or services. By the end of this tutorial, CAIE AS Level Accounting students will have a clear understanding of overhead absorption rate and its role in absorption costing, enabling you to analyze and interpret cost allocation processes effectively.
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