Absorption Costing Converts Fixed Production Overheads into Product Cost

Absorption Costing and Price
Richard D. Cushing
"Absorption costing" or any other costing method cannot "determine... the price." The market always determines "the price." The only thing manufacturing cost can determine is whether or not an organization can manufacture an item at a cost low enough that, when sold at a price the market accepts, the price will cover truly variable costs plus operating expenses plus profit. If the result is "yes," then the item will continue to be manufactured by the organization in question. If the answer is "no," then the item will cease to be manufactured by the organization.

Absorption Costing: Transferring Overheads to P&L
shafana, Member
The under and over applied overheads can be transferred to the P&L a/c accordingly.

Absorption Costing and Variance
Samsiah, Member
@Shafana: What P&L account? Do we need to create a special P&L a/c for the variance?

Absorption Costing & P&L
Manven, Member
@Shafana: Only a major change in Inventory has effect on absorption costing in the P&L; other items are actually treated as revenue or expense.
If you are doing a variance analysis before the P&L is made, then this effect can be mentioned in the current period or else needs to be adjusted as carry forward effect to the next period.