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Definition of

overhead absorption rate


proportion of overhead attributed to product or service a means of attributing overhead to a product or service, based for example on direct labor hours, direct labor cost, or machine hours (the number of hours for which a machine is in production). The choice of overhead absorption base may be made with the objective of obtaining "accurate" product costs, or of influencing managerial behavior; for example, overhead applied to labor hours or part numbers appears to make the use of these resources more costly, thus discouraging their use.

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Definitions of ’overhead absorption rate’ and meaning of ’overhead absorption rate’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’overhead absorption rate’ and other financial terms with our online QFINANCE Financial Dictionary.

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