Total absorption costing (TAC) is a method of Accounting cost which entails the full cost of manufacturing or providing a service. TAC includes not just the costs of materials and labour, but also of all manufacturing overheads (whether ‘fixed’ or ‘variable’). The cost of each cost center can be direct or indirect. The direct cost can be easily identified with individual cost centers. Whereas indirect cost cannot be easily identified with the cost center. The distribution of overhead among the departments is called apportionment. Primary apportionment or distribution of overheads The selection of the base on which overheads are or should be apportioned depends on the following principles: Service or use basis: If the benefit obtained by various departments from the overheads can be measured, overheads can be apportioned on that basis. Survey basis: If amount of overhead can't be measured survey basis can be applied. For example, if it can be noted that a supervisor is giving 60% of their time to one department and 40% to another, their wage can be apportioned on that basis. Ability to pay basis: In this case the apportionment may depend on the factors like total sale/profitability. This may not be a fair case always as some departments may have to take most of the burden. Secondary Apportionment With the process of primary apportionment or distribution, the loading of overheads for all the departments i.e. production as well as service departments can be obtained. The next step is to transfer the overheads of non-production departments to the production departments, as the various cost centers move through the production departments only. Absorption Each job while moving through the production department should get its share of overhead. This process of distribution of overheads is called absorption. There can be a number of methods of absorption of overheads, consideration should be given to the type of industry, manufacturing process, nature of industry etc. The various methods of absorption are Direct material cost percentage rate Direct labour cost percentage rate Prime cost percentage rate Labour hour rate Machine hour rate Direct material cost percentage rate In this method overhead is calculated as a percentage of the material cost. This is used where the material cost is high and of prime importance. Here other costs are negligible or are dependent on the material cost. This is calculated as (Amount of overhead/Material cost)x 100 If the production overhead is