It is relatively easy to ascertain the prime cost as they are closely identified with the final product. However it is more difficult to relate the indirect costs – the overheads to the product. Absorption costing is an attempt to achieve this so that overhead can be charged to products.

Advertisement

 

There are three stages in the absorption costing process- allocation, apportionment and absorption.

 

Allocation is the process of locating overheads which can be identified with a particular cost centre in that cost centre. Overhead items which cannot be identified with a cost centre but are incurred for the benefit of the entire business must be shared out or apportioned across a number of cost centres. If there are overheads located in non-production or service cost centres they must be re-apportioned to production cost centres.  Finally, when all the production overheads are located in production cost centres the final stage of absorbing or recovering the overheads and charging them to a product, job or process.

 

Advertisement
The following two tabs change content below.
We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected]
0 Comments

Leave a reply

Your email address will not be published. Required fields are marked *

*

*

BMS.co.in is aimed at revolutionising Bachelors in Management Studies education, also known as BMS for students appearing for BMS exams across all states of India. We provide free study material, 100s of tutorials with worked examples, past papers, tips, tricks for BMS exams, we are creating a digital learning library.

Disclaimer: We are not affiliated with any university or government body in anyway.

©2019 BMS - Bachelor of Management Studies Community 

A Management Paradise Venture

Ask Us On WhatsApp
or

Log in with your credentials

or    

Forgot your details?

or

Create Account