Absorption costing, sometimes called "full costing," is a managerial accounting method for capturing all costs associated with manufacturing a particular product. The direct and indirect costs, such as direct materials, direct labor, rent, and insurance, are accounted for by using this method. while Variable costing is a concept used in managerial and cost accounting in which the fixed manufacturing overhead is excluded from the product-cost of production.

The main advantage of absorption costing is that it complies with generally accepted accounting principles (GAAP), which are required by the Internal Revenue Service of the country . Furthermore, it takes into account all of the costs of production (including fixed costs), not just the direct costs, and more accurately tracks profit during an accounting period.

The main disadvantage of absorption costing is that it can inflate a company's profitability during a given accounting period, as all fixed costs are not deducted from revenues unless all of the company's manufactured products are sold. Additionally, it is not helpful for analysis designed to improve operational and financial efficiency or for comparing product lines.

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