Author - Frolo Ivanov

Absorption Costing Definition Example

The key distinction between absorption costing and variable costing is how fixed overhead costs are treated. Variable costing is often preferred for internal decision-making because it highlights accumulated depreciation and depreciation expense the incremental costs of production. However, absorption costing is essential for financial reporting, as it aligns expenses with revenue recognition. Absorption Costing Formula It is possible to use Activity-based costing (ABC) to allocate production overheads within the application of absorption costing. However, this is too time-consuming and is not...