- Absorptive cost differs from variable cost because it allocates a fixed overhead to each unit of product produced during a period.
- Absorbing cost allocates fixed overhead to a product, whether or not it was sold during the period.
- This type of calculation method means that ending inventory includes an additional value that is carried forward as an asset on the balance sheet.
- Because more expenses are included in ending inventory, expenses on the income statement are lower when using the absorption method.