Enter the direct labor costs ($), the material cost ($), the number of units produced, and the total variable and fixed manufacturing overhead ($) into the Absorption Cost Calculator. The calculator will evaluate and display the Absorption Cost.
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Absorption Cost Formula
The following formula is used to calculate the Absorption Cost.
AC = (DL + MC + O) / U
- Where AC is the Absorption Cost ($/unit)
- DL is the direct labor costs ($)
- MC is the material cost ($)
- O is the total variable and fixed manufacturing overhead ($)
- #U is the number of units produced
To calculate an absorption cost, sum the direct cost, material cost, and overhead costs, then divide by the number of units produced.
How to Calculate Absorption Cost?
The following example problems outline how to calculate Absorption Cost.
Example Problem #1
- First, determine the direct labor costs ($). The direct labor costs ($) is given as 134 .
- Next, determine the material cost ($). The material cost ($) is calculated as 900 .
- Next, determine the total variable and fixed manufacturing overhead ($). The total variable and fixed manufacturing overhead ($) is found to be 321.
- Next, determine the number of units produced. In this example, this is 100 units.
- Finally, calculate the Absorption Cost using the formula above:
AC = (DL + MC + O) / #U
Inserting the values from above yields:
AC = (134 + 900 + 321) / 100 = 13.55 ($/unit)
