Q.Explain the direct labour cost method of absorption of factory overhead.

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%.