Absorption costing

From Wikicpa

Absorption costing is the term cost accountants use when all costs required for product production are assigned.

Product cost is defined as direct materials plus direct labor plus manufacturing overhead. These costs can be separated into variable and fixed components. The variable cost includes direct materials, direct labor and the variable manufacturing overhead. The fixed cost consists of the fixed component of the manufacturing overhead. When all these costs are allocated to the various products, this type of product costing is referred to as absorption costing.