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Absorbed Cost

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]
… The logic of this approach seems impressive. But it does not persuade its opponents. Absorption costing. As costing evolved during the nineteenth century it often came to treat cost as an 'absorbed' part of overhead as well as the direct figure …

Stabilizing large financial institutions with contingent capital certificatesStabilizing large financial institutions with contingent capital certificates
www.elgaronline.com [PDF]
… The logic of this approach seems impressive. But it does not persuade its opponents. Absorption costing. As costing evolved during the nineteenth century it often came to treat cost as an 'absorbed' part of overhead as well as the direct figure …

The theory of financial intermediationThe theory of financial intermediation
www.sciencedirect.com [PDF]
… The logic of this approach seems impressive. But it does not persuade its opponents. Absorption costing. As costing evolved during the nineteenth century it often came to treat cost as an 'absorbed' part of overhead as well as the direct figure …

Direct versus absorption costing: a replyDirect versus absorption costing: a reply
www.tandfonline.com [PDF]
… The logic of this approach seems impressive. But it does not persuade its opponents. Absorption costing. As costing evolved during the nineteenth century it often came to treat cost as an 'absorbed' part of overhead as well as the direct figure …

Global apparel production and sweatshop labour: can raising retail prices finance living wages?Global apparel production and sweatshop labour: can raising retail prices finance living wages?
academic.oup.com [PDF]
… The logic of this approach seems impressive. But it does not persuade its opponents. Absorption costing. As costing evolved during the nineteenth century it often came to treat cost as an 'absorbed' part of overhead as well as the direct figure …

The economics of hospitals in developing countries. Part II. costs and sources of incomeThe economics of hospitals in developing countries. Part II. costs and sources of income
academic.oup.com [PDF]
… The logic of this approach seems impressive. But it does not persuade its opponents. Absorption costing. As costing evolved during the nineteenth century it often came to treat cost as an 'absorbed' part of overhead as well as the direct figure …

Transaction cost economicsTransaction cost economics
www.sciencedirect.com [PDF]
… The logic of this approach seems impressive. But it does not persuade its opponents. Absorption costing. As costing evolved during the nineteenth century it often came to treat cost as an 'absorbed' part of overhead as well as the direct figure …

The cost of customer satisfaction: a framework for strategic cost management in service industriesThe cost of customer satisfaction: a framework for strategic cost management in service industries
www.tandfonline.com [PDF]
… The logic of this approach seems impressive. But it does not persuade its opponents. Absorption costing. As costing evolved during the nineteenth century it often came to treat cost as an 'absorbed' part of overhead as well as the direct figure …



Q&A About Absorbed Cost


What does absorbed cost include?

Absorbed cost includes such expenses as insurance and property taxes.

Where do absorbed costs appear on a company's income statement?

Absorbed costs appear in a separate account.

What is included in the total manufacturing cost but not included in the cost of goods sold entry on an income statement?

The implicit absorbed costs are not considered, but will be included in a separate account.

How are actual manufacturing costs determined?

The total manufacturing costs are determined by adding up all of the direct and indirect expenses.

What is the term for indirect costs that are associated with manufacturing?

Absorbed costs.

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