Which of the following is a common base for overhead absorption rates?

• A. Per labour hour
• B. Per machine hour
• C. Per unit
• D. All of the above

Answer: (D)

Overhead absorption uses a rate that applies to a chosen activity base, linking the overhead costs to the level of activity that causes them. A base is any driver that reflects how overheads are incurred, and the rate is estimated overhead divided by that base.

Labour hours are common because many overheads track with the amount of labour activity on the shop floor. Machine hours are also widely used in settings where overheads rise with machine use, such as depreciation, maintenance, or energy tied to machines. Absorbing overhead per unit works well when total overheads rise with production volume or the number of units manufactured. Since each base can reflect different cost drivers, all of these are typical options, and some firms even use multiple bases for greater accuracy.

For example, you could apply an overhead rate per labour hour, per machine hour, or per unit produced, depending on which driver best matches how overheads are consumed. The key is choosing a base that aligns with the cause of the overhead and applying it consistently.