ECONOMICS

Detailed explanation-1: -Absorption costing is a method of accounting that assigns all of a company’s manufacturing costs to the products it produces. This includes both direct costs, such as materials and labor, as well as indirect costs, such as factory overhead.

Detailed explanation-2: -Management accounting technique where indirect manufacturing or overhead costs are spread fairly across the range of products made by the business. Method which only takes into account variable costs and ignores fixed costs. Also called variable costing.

Detailed explanation-3: -Absorption costing, sometimes called “full costing, ” is a managerial accounting method for capturing all costs associated with manufacturing a particular product. All direct and indirect costs, such as direct materials, direct labor, rent, and insurance, are accounted for when using this method.

Detailed explanation-4: -Under this method, overhead absorption rate is calculated by dividing the overhead with the number of direct labour hours. For example, the budgeted overhead of production centre is Rs . 2, 00, 000 and the budgeted direct labour hours for the period is 40, 000.

Detailed explanation-5: -Professional fees, rent, taxes, insurance, utilities, employee salaries, advertising, office rent, depreciation, office supplies, etc., are some indirect costs. These expenses are indirect; hence, the same cannot be directly assigned to manufactured goods and services.