ECONOMICS

Detailed explanation-1: -The formula for absorption costing can be written as follows: Absorption cost = (Direct labor costs + Direct material costs + Variable manufacturing overhead costs + Fixed manufacturing overhead) / Number of units produced.

Detailed explanation-2: -To calculate the overhead rate, divide the indirect costs by the direct costs and multiply by 100. If your overhead rate is 20%, it means the business spends 20% of its revenue on producing a good or providing services.

Detailed explanation-3: -To compute the overhead rate, divide your monthly overhead costs by your total monthly sales and multiply it by 100. For example, if your company has $80, 000 in monthly manufacturing overhead and $500, 000 in monthly sales, the overhead percentage would be about 16%.