What are the major categories in absorption costing?

Absorption costing, also known as full costing, categorizes costs into three major groups: direct materials, direct labor, and manufacturing overhead. Direct materials include all raw materials used in production, while direct labor encompasses the wages of workers directly involved in manufacturing. Manufacturing overhead covers all indirect costs associated with production, such as utilities, depreciation, and maintenance of the production facility. This method ensures that all manufacturing costs are absorbed by the units produced, impacting inventory valuation and profit reporting.