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The session also compares job order costing, process costing, and ABC costing, explaining when each system fits and how production costs move from Work in Process to Finished Goods and then to Cost of Goods Sold.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/exam/","Exam",3,{"item":32,"name":10,"@type":21,"position":33},"https://docshare.wps.com/document/absorption-costing-overview-concluding-comments/297876/",4,{"url":32,"name":10,"@type":35,"image":36,"author":41,"headline":10,"publisher":44,"fileFormat":47,"inLanguage":8,"description":12,"dateModified":48,"datePublished":49,"encodingFormat":47,"isAccessibleForFree":50,"interactionStatistic":51},"DigitalDocument",{"url":37,"@type":38,"width":39,"height":40},"https://docshare.wps.com/thumbnails/absorption-costing-overview-concluding-comments/297876.png","ImageObject",300,407,{"name":42,"@type":43},"Patrick","Person",{"url":19,"name":45,"@type":46},"DocShare","Organization","application/pdf","2026-10-21","2026-09-18",true,{"@type":52,"interactionType":53,"userInteractionCount":55},"InteractionCounter",{"@type":54},"ViewAction",9,{"@type":57,"mainEntity":58},"FAQPage",[59,65,69],{"name":60,"@type":61,"acceptedAnswer":62},"What is the main difference between absorption costing and variable costing?","Question",{"text":63,"@type":64},"Absorption costing traces both variable and fixed production costs to the product. Variable costing traces only variable production costs to the product, while fixed costs are treated as period expenses.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"How are overhead costs handled in absorption costing?",{"text":68,"@type":64},"Overhead costs are first accumulated in overhead expense accounts (e.g., electricity, depreciation). Throughout the year they are transferred to Work in Process, based on overhead application.",{"name":70,"@type":61,"acceptedAnswer":71},"Why can cost of goods manufactured differ from cost of goods sold?",{"text":72,"@type":64},"Because some manufacturing costs remain in inventory as assets when finished goods are not all sold. 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Overview of Absorption costing and Variable Costing  \n2. Review how costs for Manufacturing are transferred to the product  \n3. Job Order Vs. Process Costing  \n4. Overhead Application  \n-Under applied Overhead  \n-Over applied overhead  \n5. Problems with Absorption Costing  \n6. Concluding Comments  \nAbsorption Costing  \nThe focus of this class is on how to allocate manufacturing costs to the product.  \n- Direct Materials  \n- Direct Labor  \n- Overhead  \nAbsorption costing is a process of tracing the variable costs of production and the fixed costs of production to the product.  \nVariable Costing traces only the variable costs of production to the product and the fixed costs of production are treated as period expenses.  \nAbsorption Costing  \nThere are three different types of Absorption Costing Systems:  \n- Job Order Costing  \n- Process Costing  \n- ABC Costing  \nIn Job Order Costing costs are assigned to the product in Batches or lots.  \n- Printing  \n- Furniture manufacturing  \n- Bicycle Manufacturing  \nIn Process Costing, costs are systematically assigned to the product, since there are no discreet batches to assign costs.  \n- Oil Distilling  \n- Soda Manufacturing  \nABC Costing assigns cost from cost centers to the product  \n- Best in a multi product firm, where there are different volumes  \nAbsorption Costing  \nA simplified view of Production:  \nIntroduce Raw Materials  \nManufacture Product  \n1. Direct materials are purchased  \n2. Direct materials are placed into production  \n1. Direct labor 1. Production process applied to completed product 2. Goods are shipped  \n2. Overhead costs for sale are incurred  \nAbsorption Costing  \nHow do we account for the production process?  \n1. Direct materials are purchased and recorded as an asset.  \n2. As direct materials are placed into production, their cost is transferred from the raw materials account to the Workin-Process account (an asset)  \n3. As direct labor costs are incurred they are recorded in a labor expense account. Throughout the year they are transferred from the labor expense account to Work-inprocess account (an asset) .  \nAbsorption Costing  \n4. Overhead costs are initially accumulated in expense accounts (electricity, depreciation, etc..) . Throughout the year they are transferred to Work-in-process.  \n5. When goods are completed, their costs (direct materials, direct labor and overhead) are transferred out of Work-inprocess, and into Finished Goods.  \n6. When foods are sold, their costs are transferred out of finished goods inventory (an asset) and into Cost of goods sold (an expense) .  \nAbsorption Costing  \nImportant points to take away from how we account for manufacturing costs:  \n1. Initial expenditures on raw materials, direct labor, and overhead are CAPITALIZED (recorded as assets) in Work in process and finished goods inventory.  \n2. They are transferred to expense accounts when the finished goods are sold (they go to cost of goods sold) .  \n3. Generally the cost of goods manufactured,(the costs incurred in manufacturing the product) will not equal the cost of goods sold.  \n- This means that in any year some of the costs associated with manufacturing the product will not flow through the income statement as an expense, they will remain in the inventory accounts as assets!  \nAbsorption Costing  \nConsider the following example:  \nA company is formed to manufacture computers. It starts the year with $2000 in cash and equity. During the year the company incurs $500 in payroll costs, $500 in rent for the plant, and $500 in raw materials. During the year he makes 100 computers.  \nWhat will his profits (or loss) be if he sells no computers?  \nWhat will his profits be if he sells all 100 computers at $20 per computer?  \nJob Order Costing  \nJob Order Costing is one method of allocating the costs of manufacturing to the product.  \nIn Job order costing the manufacturing costs are allocated to the product by batch.  \nJob order costing is appro","cbCaieQkJ08NVhOs","https://ap.wps.com/l/cbCaieQkJ08NVhOs","pdf",80079,24,"English","# Absorption Costing - Overview\n## Overview of Absorption Costing and Variable Costing\n## Costs Transfer for Manufacturing\n## Job Order Vs. Process Costing\n## Overhead Application\n## Problems with Absorption Costing\n## Concluding Comments","[{\"question\":\"What is the main difference between absorption costing and variable costing?\",\"answer\":\"Absorption costing traces both variable and fixed production costs to the product. Variable costing traces only variable production costs to the product, while fixed costs are treated as period expenses.\"},{\"question\":\"How are overhead costs handled in absorption costing?\",\"answer\":\"Overhead costs are first accumulated in overhead expense accounts (e.g., electricity, depreciation). Throughout the year they are transferred to Work in Process, based on overhead application.\"},{\"question\":\"Why can cost of goods manufactured differ from cost of goods sold?\",\"answer\":\"Because some manufacturing costs remain in inventory as assets when finished goods are not all sold. Therefore, cost of goods manufactured generally does not equal cost of goods sold in the same year.\"}]","Absorption Costing-Overview - Concluding Comments | PDF",1789748694]