What is ‘Absorbed Cost’
The indirect costs that are associated with manufacturing. Absorbed costs include such expenses as insurance, or property taxes for the building in which the manufacturing process occurs. When the total manufacturing costs are determined, the implicit absorbed costs are not considered, but will be included in a separate account.
Explaining ‘Absorbed Cost’
On a company’s income statement, the cost of goods sold entry does not reflect the absorbed costs; only the actual costs of the material is included. Incurring insurance and property tax expenses is a required part of the manufacturing process, but these absorbed costs are classified as separate expenses.
Further Reading
- Direct versus absorption costing: a comment – www.tandfonline.com [PDF]
- Stabilizing large financial institutions with contingent capital certificates – www.elgaronline.com [PDF]
- The theory of financial intermediation – www.sciencedirect.com [PDF]
- Direct versus absorption costing: a reply – www.tandfonline.com [PDF]
- Global apparel production and sweatshop labour: can raising retail prices finance living wages? – academic.oup.com [PDF]
- The economics of hospitals in developing countries. Part II. costs and sources of income – academic.oup.com [PDF]
- Transaction cost economics – www.sciencedirect.com [PDF]
- The cost of customer satisfaction: a framework for strategic cost management in service industries – www.tandfonline.com [PDF]
