The absorption cost information is useful because it reflects full costs that the sales must exceed for company to be profitable.
The complete cost of producing a good or rendering a service is taken into account by the total absorption costing (TAC) accounting approach. Whether "fixed" or "variable," all production overheads are included in TAC in addition to the costs of materials and labor. Both the direct and indirect costs can be associated with each of cost center. Using the specific cost centers, direct cost can be located with ease. Contrarily, it is difficult to associate cost center with the indirect costs. Assocation is the term used to describe how overhead is divided among the departments. Primary apportionment, often known as distribution, is a method that allows for the loading of overheads for both production and service departments.
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