method allocating overhead costs to product an accounting practice in which fixed and variable costs of production are absorbed by different cost centers. Providing all the products or services can be sold at a price that covers the allocated costs, this method ensures that both fixed and variable costs are recovered in full. However, if sales are lost because the resultant price is too high, the organization may lose revenue that would have contributed to its overhead.
Related definitions of "absorption costing"
- See also marginal costing