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Fixed Overhead Absorption at Normal Capacity (ASC 330)

Is the practice earning what it should for the hours it spends?

Fixed overhead rate on normal capacity, overhead absorbed into inventory and unabsorbed overhead expensed in the period.

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Your figures
Example figuresIllustrative only. Type over them with your own.
Unabsorbed overhead expensed
$240,000
Charged to expense, not inventory
Fixed overhead rate per unit
$12
Overhead absorbed into inventory
$960,000
Drawn to one scale
Unabsorbed overhead expensed$240,000
Fixed overhead rate per unit$12
Overhead absorbed into inventory$960,000
All results
MeasureResult
Unabsorbed overhead expensed$240,000
Fixed overhead rate per unit$12
Overhead absorbed into inventory$960,000
Rate basisNormal capacity
How this was worked out
Work shownrecomputed as you type
Rate = fixed overhead / max(normal capacity, actual production)
Absorbed = rate x actual production
Expensed = fixed overhead - absorbed

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • Rate = fixed overhead / max(normal capacity, actual production)
  • Absorbed = rate x actual production
  • Expensed = fixed overhead - absorbed

How it works

ASC 330-10-30-3 to 30-7 allocates fixed production overhead to inventory on the basis of normal capacity. Unallocated overhead from low production or idle plant is recognized as an expense in the period, not added to inventory. In periods of abnormally high production, the amount per unit is reduced so inventory is not measured above cost.

Normal capacity is the production expected on average over a number of periods under normal circumstances, allowing for planned maintenance. Actual production may be used when it approximates normal capacity.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

Do variable overheads follow the same rule?

No. Variable overhead is allocated on actual use of production facilities.

Where is unabsorbed overhead presented?

As an expense of the period in which it is incurred, never in inventory. ASC 330 does not name the income statement line.

Is abnormal freight or spoilage capitalized?

No. ASC 330-10-30-7 expenses abnormal freight, handling costs and wasted materials.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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