Calculate absorption cost per unit or solve for direct labor, material cost, overhead, or units produced from the other four values entered.

Variable plus allocated fixed manufacturing overhead; exclude selling and administrative expenses.

Absorption pricing
Optional: adds an absorption (cost-plus) selling price. Blank skips it.

Absorption Cost Formula

Choose the unknown under Solve for and enter the other four values for the same production period. The following formula estimates absorption cost, with manufacturing overhead already allocated appropriately. Amounts use US dollars; selling and administrative expenses are excluded. 

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.

Per-unit inputs and period costs

If materials, labor and variable manufacturing overhead are given per unit, select Unit product cost from per-unit inputs. Enter those three per-unit amounts, the total fixed manufacturing overhead and units produced for the same period. Unit product cost = materials per unit + labor per unit + variable manufacturing overhead per unit + total fixed manufacturing overhead / units produced. Fixed overhead must be allocated appropriately to that production.

To total selling and administrative expenses, select Period cost (selling and administration). Period cost = variable selling and administrative cost per unit sold × units sold + fixed selling and administrative cost. Use units sold rather than units produced. Under absorption costing, manufacturing costs belong to product cost; selling and administrative expenses are period costs. Cost of goods sold is separate from this period-cost total.

How to Calculate Absorption Cost?

The following example problems outline how to calculate Absorption Cost.

Example Problem #1

  1. First, determine the direct labor costs ($). The direct labor costs ($) is given as 134.
  2. Next, determine the material cost ($). The material cost ($) is calculated as  900.
  3. Next, determine the total variable and fixed manufacturing overhead ($). The total variable and fixed manufacturing overhead ($) is found to be 321.
  4. Next, determine the number of units produced. In this example, this is 100 units.
  5. 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)