What Is Absorbed?
Absorbed as a business term generally alludes to the most common way of taking in, getting, or bearing. The term can be applied in a number of various circumstances, the most common of which is manufacturing overhead. At the point when a company retains a cost increase as opposed to giving it to a consumer is one more occurrence in which the term can be utilized. Different occurrences remember retaining shares for a initial public offering (IPO) and engrossing a firm in a mergers and acquisition transaction (M&A).
Absorbed is commonly utilized while examining a company's overhead costs. Commonly, absorbed overhead alludes to the manufacturing overhead that has been allocated to delivered goods or other cost objects. Cost objects are specific things for which a company needs to evaluate costs for managerial accounting purposes. A service, segment, project, activity, and corporate department are instances of a cost object. Overhead addresses indirect costs (i.e., not direct labor or materials) that are assigned to a product or cost object utilizing a overhead rate. At the point when this overhead is allocated, it becomes absorbed.
There are times when overhead is either finished or under-absorbed, implying that the allocated amount is higher or lower than the genuine amount incurred. A firm will ultimately address the imbalance to deliver more accurate cost-accounting records.
An absorbed price increase of a cost input alludes to the practice of a company deciding to bear the extra cost as opposed to picking to give it to its customers. Deciding to retain the cost would cut into the company's profit margin, yet it is a conscious decision by management to keep up with customer satisfaction with respect to price, particularly on the off chance that the product or service being referred to is subject to a measure of demand elasticity or on the other hand in the event that there are numerous rivals in the market. The company would prefer to keep the sale at a lower margin instead of lose it through and through.
For instance, suppose a peanut butter company's cost for peanuts increases from 50 pennies for every jar to $1.00 per jar. The company chooses to keep the cost of one jar at $3 as opposed to raising it to $3.50, thusly retaining the increase in nut price input, instead of giving it to the customer. In any case, its profit margin declines.
At the point when an underwriter can't sell every one of the shares of a bought deal in an IPO, it must take in the excess shares on its own books. The unsold shares are supposed to be absorbed by the underwriter. A company that has been purchased in a M&A transaction will be absorbed either when the deal formally closes or when its integration with the acquirer is complete.
- Absorbed is a reference to something taken in or acquired, for example, a price increase, or one more cost.
- The term is much of the time utilized corresponding to manufacturing overhead that has been allocated to delivered goods or other cost objects.
- Absorbed can likewise be a reference to picking up shares in an IPO or to buying one more company in a merger.