Advantages of Absorption Costing

Advantages of Absorption Costing

Advantages of absorption costing can be explained in terms of rational, stock valuation, financial statement preparation, setting price.

1.    Rational & Logical

First advantage of absorption costing is that it is based on a strong logic and rational i.e. all cost should be part of product.

2.    Stock Valuation

Second advantages of absorption costing are its facilitation in stock valuation. At the end of financial year stock value can be easily calculated due to the absorption costing.

3.    Financial Reporting

Third advantage of absorption costing is its support for the preparation of financial statement. Absorption costing provides relevant information i.e. product cost & stock value for the preparation of financial statement.

4.    Setting price

Fourth advantage of absorption costing is its facilitation for price determination. It provides full cost of product, which is one of the key factors in price determination or setting.

5.    Accurate Financial Position & Performance

Absorption costing reflects the accrual financial position and performance of the organization by accurately valuing the stock & product cost. These both are major element of financial statements.