ABSTRACT
This chapter explains the concept of overhead recovery and demonstrates its significance for the sound financial management and it provides some practical examples. The term overhead recovery or overhead absorption refers to the way these fixed costs are recovered or absorbed into the price. Fixed costs should not be forgotten, though, particularly with regard to pricing policy, where overhead costs have to be recouped and reflected in the final price. Overheads the great majority of which would normally be classified as fixed costs are incurred as a matter of course as part of a business overall operations. Allocation means charging costs which are clearly identified, such as, in this case, the materials and labour. Cost allocation, apportionment and absorption are seen as the suitable methods for costing and pricing their products and services and have been in use since the Industrial Revolution and Victorian times.
