Absorbed cost

This refers to the full cost producing goods or services.

The absorbed cost of a good or service includes an appropriate proportion of the indirect costs of the item, for example a share of the business’s insurance premiums, management overheads or other fixed costs. Understanding the full cost of the item is important for internal decisions on pricing, absorption costing is required for external reporting purposes.

Absorbed cost is a term normally found in management accounting and financial reporting.

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