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.


Full Definition of Absorption Costing


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Absorption Costing. Payroll & Accounting Heaven Ltd. November 15, 2019
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Absorption Costing. Payroll & Accounting Heaven Ltd. (accessed: November 15, 2019).
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Absorption Costing. Retrieved November 15, 2019, from website:

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