How Do You Spell ABSORBED COST?

Pronunciation: [ɐbsˈɔːbd kˈɒst] (IPA)

The spelling of the term "absorbed cost" may seem straightforward, but the phonetic transcription reveals some nuances. The correct pronunciation is /əbˈsɔːbd kɒst/, with the emphasis on the second syllable of "absorbed" and the first syllable of "cost." The "s" sound in "absorbed" is voiced, while the "s" sound in "cost" is unvoiced. This term refers to the indirect costs that are included in the cost of a product or service, typically related to production and administration.

ABSORBED COST Meaning and Definition

1. Absorbed cost refers to the direct and indirect expenses that are included in the cost of producing a specific product or providing a service. It encompasses all the costs that a company incurs during the manufacturing or production process of its goods or services. Absorbed costs include both variable and fixed costs incurred in the production process and are also known as manufacturing overheads or factory overheads.

   Variable costs are expenses that vary proportionally with the level of production, such as raw materials, direct labor, and direct utilities. Fixed costs, on the other hand, are expenses that remain constant regardless of the level of production, including rent, insurance, and depreciation of production equipment.

   These absorbed costs are allocated or apportioned to each unit of product or service based on a predetermined method, such as using a standard overhead rate or a cost driver. The allocation of absorbed costs is crucial for accurately determining the total cost of producing a particular item or delivering a service.

   Absorbed costs are an essential component of calculating the cost of goods sold and determining the profitability of a company's products or services. They are usually recorded in a company's accounting system and are utilized for budgeting, pricing decisions, and evaluating the performance of various production processes or product lines.

Etymology of ABSORBED COST

The word "absorbed cost" is a combination of two distinct terms:

1. Absorbed: This word is derived from the verb "absorb", which has its roots in Latin. The Latin word "absorbere" means "to swallow up" or "to engulf". In the context of cost accounting, the idea of absorbing costs refers to incorporating or including them within a broader unit or entity.

2. Cost: The term "cost" originates from the Latin word "constare", which means "to stand together" or "to cost". In accounting, cost refers to the expense incurred in creating or producing something, and it can include various elements such as materials, labor, and overhead.

Therefore, the etymology of "absorbed cost" shows that it describes expenses that have been incorporated into a particular unit, project, or product rather than remaining separate or distinct.