Q.Direct material is Rs. 200, direct labour is Rs. 300 and factory cost is Rs. 1,000. If prime cost is the basis of absorption, the rate absorption of factory overhead is

Percentage on direct material cost is a method of absorption of overhead — option (c).

Absorption means charging the overhead of a cost centre to the cost units (products/jobs) passing through it, using an overhead rate. The "percentage of overhead on direct material cost" is one such absorption/recovery rate:

Overhead rate = (Overhead ÷ Direct material cost) × 100.

• Allocation (a) = charging a whole overhead item to one cost centre directly.
• Apportionment (b) = splitting a shared overhead over several centres. …

The one-word term is Absorption.

Absorption (also called overhead recovery) is the process of charging the overhead of a cost centre to the cost units (products/jobs) that pass through it, using a predetermined ov …

A single overhead rate used for the whole factory or industry is a blanket (single) rate.

In overhead absorption (a +2 Cost Accounting topic), a blanket rate is one overhead absorption rate computed for the entire factory (or adopted for the industry as a whole), rather than separate departmental rates. It is simple but less accurate, suitable mainly where only one product is made or where all …

The one-term answer is Absorption.

The overhead accounting sequence is: collection → allocation/apportionment to cost centres → absorption to cost units. Absorption (also called overhead recovery) is the charging of a department's overheads to the individual cost units (products/jobs) passing through it, usually via a predetermined absorption rate. (Compare: allotment of over …

Overhead absorption rate on prime cost = (b) 100%.