Absorption Cost Calculator

Formula

The formula to calculate the Absorption Cost (AC) is:

\[ AC = \frac{DL + MC + O}{U} \]

Where:

$ DL $ is the direct labor costs ($).
$ MC $ is the material cost ($).
$ O $ is the total variable and fixed manufacturing overhead ($).
$ U $ is the number of units produced.

Example

Let's say the direct labor costs ($ DL $) are $5000, the material cost ($ MC $) is $3000, the total variable and fixed manufacturing overhead ($ O $) is $2000, and the number of units produced ($ U $) is 1000. Using the formula:

\[ AC = \frac{DL + MC + O}{U} = \frac{5000 + 3000 + 2000}{1000} = \frac{10000}{1000} = 10 \text{ dollars/unit} \]

So, the Absorption Cost ($ AC $) is $10 per unit.

What is Absorption Cost?

Absorption cost refers to the total cost assigned to each unit of production, including direct labor, material costs, and both variable and fixed manufacturing overhead. This method ensures that all manufacturing costs are accounted for in the cost of each unit produced, providing a comprehensive view of production expenses.