Asked by Savannah Fortson on Apr 26, 2024
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Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that:
A) variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials, direct labor, and the variable portion of manufacturing overhead as product costs.
B) variable costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs.
C) variable costing treats only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.
D) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.
Absorption Costing
An accounting method that includes all direct costs and allocated overhead costs in the cost base of manufactured goods.
Variable Costing
A costing method that includes only variable production costs (direct labor, direct materials, and variable manufacturing overhead) in the cost of goods sold, with fixed manufacturing overhead treated as period costs.
Direct Labor
The wages and related expenses for workers who are directly involved in the manufacturing of products.
- Comprehend the principal distinctions between absorption costing and variable costing approaches.
- Ascertain which expenses are classified as product costs in variable and absorption costing methods.
Verified Answer
Learning Objectives
- Comprehend the principal distinctions between absorption costing and variable costing approaches.
- Ascertain which expenses are classified as product costs in variable and absorption costing methods.
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