Absorbed cost

Absorbed cost,

Definition of Absorbed cost:

  1. Absorption costing absorbs all the manufacturing costs per unit produced. By including overhead, in addition to materials and factory labor costs, it helps companies determine the overall cost of producing a single brand, line or product — and which of these are the most profitable. Absorbed costs are expenses like energy costs, equipment rental costs, insurance, and property taxes.

  2. Absorbed cost, also known as absorption cost, is a managerial accounting method that accounts for the variable and fixed overhead costs of producing a particular product. Knowing the full cost of producing each unit enables manufacturers to price their products. That is why absorption costing is also referred to as full costing or the full absorption method.

  3. A companys expenses such as insurance and property taxes that are affiliated with manufacturing operations. These costs are typically shown in a separate account.

Meaning of Absorbed cost & Absorbed cost Definition