Absorbed overhead is the amount of indirect costs (overheads) that are allocated to a product or job during production.
Overheads include:
Factory rent
Electricity
Supervisor salaries
Depreciation of machinery
These costs cannot be directly traced to one product, so they are distributed using a predetermined rate (like per labour hour or machine hour).
In simple terms, absorbed overhead is the share of factory expenses added to the cost of each product.


