absorption costing

Definitions

Accounting

  • noun a form of costing for a product that includes both the direct costs of production and the indirect overhead costs as well
  • noun an accounting practice in which fixed and variable costs of production are absorbed by different cost centres. Providing all the products or services can be sold at a price that covers the allocated costs, this method ensures that both fixed and variable costs are recovered in full.

Economics

  • noun the fixing of the price of a product to include both the direct costs of production and a part of the overhead costs which are absorbed as well. Absorption costing follows three stages: allocation of actual overhead costs directly to the cost centre to which they relate; apportionment, by which common overhead costs are divided between various cost centres in proportion to the estimated benefit to each cost centre; absorption, by which the total costs are charged to each unit of production.

Publishing

  • noun a costing method which takes into account the time taken and the overhead costs for each part of a job, rather than dealing with the job on a single-cost basis
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