Absorption Costing

A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption costing uses the total direct costs and overhead costs associated with manufacturing a product as the cost base. Generally accepted accounting principles (GAAP) require absorption costing for external reporting.

Absorption costing is also known as "full absorption costing".

Some of the direct costs associated with manufacturing a product include wages for workers physically manufacturing a product, the raw materials used in producing a product, and all of the overhead costs, such as all utility costs, used in producing a good.

Absorption costing includes anything that is a direct cost in producing a good as the cost base. This is contrasted with variable costing, in which fixed manufacturing costs are not absorbed by the product. Advocates promote absorption costing because fixed manufacturing costs provide future benefits.


Investment dictionary. . 2012.

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  • absorption costing — ➔ costing * * * absorption costing UK US noun [U] (also full costing) ► ACCOUNTING a method of calculating the cost of a product where all fixed costs (= costs that are the same each month) are included → Compare MARGINAL COSTIN …   Financial and business terms

  • absorption costing — noun Product costing that takes account of overheads • • • Main Entry: ↑absorb …   Useful english dictionary

  • absorption costing — full absorption costing; = total absorption costing The cost accounting system in which the overheads of an organization are charged to the production by means of the process of absorption. Costs are first apportioned to cost centres, where they… …   Accounting dictionary

  • absorption costing — full absorption costing; total absorption costing The cost accounting system in which the overheads of an organization are charged to the production by means of the process of absorption Costs are first apportioned to cost centres, where they are …   Big dictionary of business and management

  • absorption costing — A costing method that allocates all *manufacturing costs to *units of inventory or other measures of output. Normally required by most systems of *Generally Accepted Accounting Principles, absorption costing takes account of both *direct (or… …   Auditor's dictionary

  • absorption costing — /əb zɔ:pʃən ˌkɒstɪŋ/ noun costing a product to include both the direct costs of production and the indirect overhead costs as well …   Marketing dictionary in english

  • absorption costing — /əb zɔ:pʃən ˌkɒstɪŋ/ noun a form of costing for a product that includes both the direct costs of production and the indirect overhead costs as well …   Dictionary of banking and finance

  • absorption costing — Fin an accounting practice in which fixed and variable costs of production are absorbed by different cost centers. Providing all the products or services can be sold at a price that covers the allocated costs, this method ensures that both fixed… …   The ultimate business dictionary

  • absorption costing — noun a method of calculating the cost of a product or enterprise by taking into account overheads as well as direct costs …   English new terms dictionary

  • Total absorption costing — (TAC) is a method of Accounting cost which entails the full cost of manufacturing or providing a service. This includes not just the costs of materials and labour, but also of all manufacturing overheads (whether ‘fixed’ or… …   Wikipedia

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