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Financial & Managerial Accounting
Found in: Page 867
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

What costs are normally included in product costs under absorption costing?

Direct materials, direct labor, and variable and fixed overhead costs are included in the product cost under absorption costing.

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Step by Step Solution

Step 1: Meaning of Absorption costing

Absorption costing is a method to calculate the total cost of the product manufactured in the company. It includes the total cost, i.e., both fixed and variable costs of manufacturing.

Step 2: Product cost

Product cost means the total cost incurred by the company in producing the goods. It includes the direct material, labor, overheads (fixed or variable), etc

Step 3: Direct material

It is the cost of raw material or physical inputs used for the manufacturing process.

Step 4: Direct labor

It is the cost, i.e., salary or wages associated with the organization's workforce.

Step 5: Variable overheads costs

The cost of each additional unit is known as a variable cost, and it is directly proportional to the level of activity.

Step 6: Fixed overhead costs

Fixed cost is the cost that remains constant or does not change in totality, irrespective of the level of activity operated

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