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DESCRIPTION
The Absorption Costing method, also known as Full Costing and Full Absorption Costing, is a method for accumulating the costs associated with a production process and apportioning them to individual products. It is an inventory valuation and costing model that includes all manufacturing costs:
1. Direct Materials
2. Direct Labor
3. Overhead (Direct & Indirect)
Absorption Costing is often contrasted with Variable Costing or Direct Costing. Under Variable or Direct Costing, the fixed manufacturing overhead costs are not allocated or assigned to (not absorbed by) the products manufactured. Variable costing is often useful for management's decision-making. However, Absorption Costing is a Generally Accepted Accounting Principles (GAAP) requirement. Many people advocate Absorption Costing, because fixed manufacturing costs provide future benefits.
There are types of Absorption Costing Systems:
1. Job Order Costing
2. Process Costing
3. Activity Based Costing (also known as ABC Costing)
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Source: Best Practices in Activity Based Costing, Absorption Costing, Cost Analysis PowerPoint Slides: Absorption Costing Method PowerPoint (PPT) Presentation, PPT Lab
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Costing Cost Reduction Assessment Strategic Sourcing Management Accounting Activity Based Costing Process Improvement Process Analysis Cash Flow Management Quality Management & Assurance Cost of Quality Change Management Change Resistance Pricing Strategy Business Case Development
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