1999•Unpublished venueRequires access
Absorption Costing
Jill Hussey, Roger Hussey
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Abstract
In Chapter 14 we looked at the methods that allow us to calculate the direct materials and direct labour costs for each cost unit. However, these figures alone are not sufficient, as management needs to know the total costs, including all the indirect costs. Absorption costing which is also known as total costing or total absorption costing is a method which gathers together all the direct costs and the indirect costs to arrive at a total cost for a product. The indirect costs comprise the production, selling, distribution and administration overheads. In many businesses the overheads are extremely high and therefore it is essential to find a suitable method for charging them to each cost unit.