Explain what is Cost allocation and Cost Absorption

Cost allocation:

  • Is the allotment of whole item of cost to a cost centre or a cost unit. It is the process of identifying, assigning or allowing cost to a cost centre or a cost unit


Cost absorption:

  • Is the process of absorbing all indirect costs or overhead costs allocated to or apportioned over particular cost centre or production department by the number of units produced

[Also  see another article on cost allocation versus cost apportionment]

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