## Overheads — Absorption Costing: Introduction
Overheads are expenditure that cannot be conveniently traced to or identified with any particular cost unit.
- Incurred for output generally, not for one particular work order.
- Represent expenses on ancillary facilities/services that make the production process possible.
- Arise not only in the factory but also in administration, selling and distribution.
### The 4 steps of Overhead Absorption Costing
Think of overheads moving from general pool → departments → production departments → products:
1. Collection & classification of overheads.
2. Primary Distribution — distribute overheads to all departments (production + service).
3. Secondary Distribution — re-distribute service department overheads to production departments.
4. Absorption — charge production-department overheads onto the products.
```
Overheads → [1 Collect/Classify] → [2 Primary: all depts]
→ [3 Secondary: service → production] → [4 Absorb into products]
```