Under absorption in cost accounting.

Under absorption is a term used in cost accounting to describe a situation where a company's overhead costs are not fully allocated or absorbed by its products or services. This means that some of the overhead costs remain unallocated or unabsorbed, resulting in a higher cost of production for the company.

Under absorption typically occurs when the actual overhead costs incurred by a company are higher than the overhead costs that were budgeted or estimated for a given period. This can happen due to a variety of reasons, such as unexpected changes in production volume or changes in the cost structure of the business.

The impact of under absorption can be significant, as it can result in a higher cost of production for the company, which can in turn lead to lower profitability. It can also distort the true cost of goods sold and make it difficult for the company to accurately price its products or services.

To address under absorption, companies may choose to revise their cost accounting systems, review and adjust their overhead budgets, or consider alternative pricing strategies. It is important for companies to monitor their overhead costs and absorption rates to ensure they are accurately reflecting the true cost of production and maximizing profitability