Define: Absorption Costing

UK Accounting Glossary

Definition: Absorption Costing


Quick Summary of Absorption Costing


A method of calculating the cost of a product or enterprise by taking into account indirect expenses (overheads) as well as direct costs.



What is the dictionary definition of Absorption Costing?

Dictionary Definition


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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Full Definition of Absorption Costing


Is the method under which all manufacturing costs, both variable and fixed, are treated as product costs with non-manufacturing costs, e.g. selling and administrative expenses, being treated as period costs.


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Absorption Costing. PayrollHeaven.com. Retrieved February 28, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/absorption-costing/

Definition Sources


Definitions for Absorption Costing are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • BusinessDictionary.com
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 27th January 2019.