How do you calculate absorption costing?
submitted by Art Weingartner

Franson

You've got to allocate all manufacturing costs, which would be direct materials, direct labor, and both variable and fixed manufacturing overheads. You allocate those costs to each unit you produce.

Now, to calculate your absorption costs, you add up all these costs and divide by the total units you produced. So, the formula is: (Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead) / Total Units Produced.

beanie

Absorption costing basically means including everything related to making the product. You'd look at materials, labor, and overhead, and include that in the product's cost. So, add up all those costs for that period and then divide them by the number of units you made. That gives you the cost per unit under absorption costing.