If the overhead absorbed are less than overheads incurred it is under absorption of overheads and if the overhead absorbed is more than the actual overhead incurred it is called over absorption of overheads. Here is the list of causes of under and over absorption of overheads –
1. Seasonal fluctuations in the overhead expenses may lead to under or over absorption of overhead.
2. If the actual output is different from the planned output
3. If the prices of materials and rate of wages paid to workers is different from the predetermined rate which company has anticipated.
4. If some unexpected expense or loss occurs it will also result in under or over absorption of overhead.