Absorption cost is defined as:

Absorption cost is defined as:

• A. Marginal cost plus fixed production overheads
• B. Prime cost plus overheads
• C. Direct costs plus variable costs
• D. Total cost minus fixed overheads

Answer: (A)

Absorption cost assigns all production costs to a unit, so the cost per unit includes both the variable (marginal) costs and the fixed production overheads allocated to that unit. The variable costs—direct materials, direct labour, and variable overheads—make up the marginal cost per unit, and fixed production overheads are added to spread across units manufactured. Therefore, absorption cost per unit equals the marginal cost per unit plus the fixed production overheads. That fits because it reflects including fixed overheads in product cost, which is the essence of absorption costing. The other descriptions either omit fixed overheads, misclassify costs, or would leave out essential components of the cost per unit.

Absorption cost assigns all production costs to a unit, so the cost per unit includes both the variable (marginal) costs and the fixed production overheads allocated to that unit. The variable costs—direct materials, direct labour, and variable overheads—make up the marginal cost per unit, and fixed production overheads are added to spread across units manufactured. Therefore, absorption cost per unit equals the marginal cost per unit plus the fixed production overheads.

That fits because it reflects including fixed overheads in product cost, which is the essence of absorption costing. The other descriptions either omit fixed overheads, misclassify costs, or would leave out essential components of the cost per unit.