Absorption Costing Flashcards
What is absorption costing
absorption costing traces all manufacturing costs to products and treats non-manufacturing costs as period costs.
Advantages of absorption costing
doesn’t understate the importance of fixed costs.
consistency with external reporting.
avoids fictitious losses being reported.
attractive to managers, believe its the best means of matching costs with revenue.
what costs do absorption costing include in product costs
direct materials
direct labour
variable manufacturing overhead
fixed manufacturing overhead.
When will absorption cost profit be greater than variable cost profit?
when production is greater than sales as not all of the fixed manufacturing overhead is written off, it is deferred in closing stock.
What is another name for absorption costing?
Full costing
