Absorption Costing

Accounting Dictionary

Absorption Costing

Absorption costing is a method of product costing that includes fixed manufacturing overhead costs, along with direct material, direct labor, and variable manufacturing costs, in the cost of the product. This method is also referred to as \"full costing.\" Absorption costing is GAAP for financial statement purposes. Absorption costing is frequently contrasted with variable costing. The difference between absorption costing and variable costing methods is the treatment of fixed manufacturing overhead. Absorption costing includes fixed overhead as product costs, while variable costing treats all fixed costs as period costs. Fixed selling, general, and administrative costs are treated the same (as period costs) under both methods. See also variable costing and activity-based costing.

Related Terms:

Variable Costing [BAR]Activity-Based Costing [BAR]Back to Dictionary

Now Leaving Becker.com

You are leaving the Becker.com website. Once you click “continue,” you will be brought to a third-party website. Please be aware, the privacy policy may differ on the third-party website. Adtalem Global Education is not responsible for the security, contents and accuracy of any information provided on the third-party website. Note that the website may still be a third-party website even the format is similar to the Becker.com website.

Continue