Absorption costing

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:28AM in Student community
I am a bit confuzzled :?
When absorption costing do you only absorb the manufacturing costs of making a product? Or can you absorb all expenses to the business?
This sounds like a real stupid question but its been ages since I did all this and I cant even remember :shock:
Think I might need to go over all this again at some point :roll:

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Absorption costing

    I am sure you only apportion the manufacturing cost to the product. i.e. electricity, rent, canteen costs.

    The point of absorbing is to allocate the cost to the product and I suppose if you think about it, expenses do not relate to the cost of the manufacturing the product. i.e. cost of say stationery is not a cost of manufacturing a unit.

    Does this make sense.

    Violet
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Absorption costing

    In terms of stock valuation, you could not absorb sales/distribution & administration overhead into products - because as we all know stock valuations used for financial accounting do not include them.

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