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What are the reasons of under or over-absorption of overhead in Cost Accounting?

The under absorption or over absorption of overheads arises due to following reasons:

  • Error is estimating overhead expenses.

    Managerial Accounting 1.0 | Flat World Education

    image source: images.flatworldknowledge.com/heisinger/heisinger-fig03_003.jpg

  • Unexpected charges in the methods of production affecting the amount of overheads.
  • Unanticipated changes in the production capacity.
  • Seasonal fluctuations in the overhead expenses from period to period.
  • Actual working hours may be more or less than hours anticipated.
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