Define: Absorption Costing

UK Accounting Glossary

Definition: Absorption Costing


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What is the dictionary definition of Absorption Costing?

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This is the cost accounting system in which the overheads of an organisation are charged to the production by means of the absorption process.

Costs are first apportioned to cost centres, where they are absorbed using absorption rates.

Although this method is simple; it invokes an essentially arbitrary allocation of costs; as such the activity-based costing system of accounting is now widely preferred.


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