Absorption Costing

Instead of defining absorption costing, it will be better to explain it with example. Suppose, Mr. A has the factory of wood works where there are lots of furniture products are manufactured. So, there are lots of material cost, labor cost and overhead expenses.


Now, if we tell our total manufacturing cost is $ 10,000, it is no so useful for anybody. But if we find the unit cost of each wooden table, it will be helpful. For finding each product unit cost, we need to absorb manufacturing cost. A system which tell us the procedure is called absorption costing. In absorb costing system, we uses methods of absorption.

For example, we need to calculate the unit cost of each table, we will add direct material cost and direct labor cost. To add this cost is not difficult. For example, we have bought $5000 wood and we have made 100 tables. It means, material cost of each table is $ 50. $ 2000 direct labor cost, we have paid. These labor manufactured 100 tables. It means, one table direct labor cost is $ 20. Now, most difficult part is to absorb manufacturing variable and fixed overheads. In this, we can include electricity cost of  each table, supervisor's cost of each table etc. So, we need different basis of absorption.

Following are main methods of absorption of overheads into unit produced.

1. Direct Material Cost Method 
2. Direct Labour Cost Method 
3. Prime Cost Method 
4. Direct Labour Hour Method 
5.Machine Hour Rate Method 
6. Rate Per Unit of Production Method 
7. Sales Price Method 

If you want to read the detail of all these methods, you should read at here

If we have calculated overhead cost of each table is $ 10 from above method, we have the total cost of manufacturing each table is

$ 50+$20+$10 = $80

Now, on the basis of this cost, we can fix the price of each table. 

COMMENTS

Comments on this Website
.
Share above Content to Your Friends



Name

access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting interest international Internet Introduction of Tally 9 inventory investment invoice IT Japan Job costing journal entries Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting otcei pakistan parents pay pal pdf pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching wikipedia working capital youtube
false
ltr
item
Accounting Education: Absorption Costing
Absorption Costing
Accounting Education
http://www.svtuition.org/2014/12/absorption-costing.html
http://www.svtuition.org/
http://www.svtuition.org/
http://www.svtuition.org/2014/12/absorption-costing.html
true
2410664366776677676
UTF-8
Not found any lecture VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at vinod@svtuition.org for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock