variable costing Absorption Costing.docVIP

variable costing Absorption Costing What is Absorption Costing? A management cost accounting method of expensing all the costs related with the production of a particular product is known as absorption costing. Absorption costing utilizes the total overhead costs and total direct costs related with producing a product as the cost base. The GAAP need absorption costing for external reporting. Generally accepted accounting principles (GAAP) require the absorption costing for the external reporting. Absorption Costing A few of the direct costs related with producing a product include the raw materials used for manufacturing a product, wages for the workers physically producing a product and all the overhead costs like all the utility costs that are used in producing a product or good. Absorption costing comprises anything which is a direct cost in manufacturing a product as the cost base. This is compared with the variable costing, in which the fixed producing costs are not absorbed by the good or product. Many of the advocates use and promote absorption costing since the fixed manufacturing costs would give future benefits. Benefits of Absorption Costing: ? ? ? ? ? It helps to know the importance of the fixed costs in manufacturing or production. Absorption costing method is generally utilized to prepare financial accountings or