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Investopedia explains 'Absorption Costing'
Some of the direct costs associated with manufacturing a product include wages for workers physically manufacturing a product, the raw materials used in producing a product, and all of the overhead costs, such as all utility costs, used in producing a good.
Absorption costing includes anything that is a direct cost in producing a good as the cost base. This is contrasted with variable costing, in which fixed manufacturing costs are not absorbed by the product. Advocates promote absorption costing because fixed manufacturing costs provide future benefits.
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