Absorption Costing
Barron's Accounting Dictionary:
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Absorption Costing
Method in which all manufacturing costs, variable and fixed, are treated as product costs, while nonmanufacturing costs (e.g., selling and administrative expenses) are treated as period costs . Absorption costing for inventory valuation is required for external reporting.
See also variable costing.
A comparison between absorption and variable costing follows:
See also variable costing.
A comparison between absorption and variable costing follows:
| Absorb, Abnormal Spoilage, Abc Method | |
| Abusive Tax Shelter, Academy of Accounting Historians, Accelerated Cost Recovery System (ACRS) |
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Absorption Costing
Investopedia Financial Dictionary:
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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".
Investopedia Says:
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.
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Barron's Accounting Dictionary
Dictionary of Accounting Terms. Copyright © 2010 by Barron's Educational Series, Inc. All rights reserved.
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Mentioned in
Factory Overhead
(business term)
Absorb
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Normal Absorption Costing
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Profit Variance
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Variable Costing
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