• 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.