ECONOMICS

Detailed explanation-1: -Absorption costing treats all costs of production as product costs (fixed and variable). Under absorption costing variable and fixed selling and admin expenses are treated as period costs and are deducted from revenue as incurred. Variable costing treats only those of production that varies output as product costs.

Detailed explanation-2: -Absorption costing treats all production costs as product costs, regardless of whether they are variable or fixed. Under absorption costing, a portion of fixed manufacturing overhead is allocated to each unit of product.

Detailed explanation-3: -Correct answer: Option c. both variable and fixed manufacturing costs are considered product costs. Explanation: Under absorption costing, the variable manufacturing costs and the fixed manufacturing overhead are considered as product costs.

Detailed explanation-4: -Answer: Direct materials, direct labor, variable overhead, and fixed overhead. How: (An income statement under absorption costing includes all production costs including direct materials, direct labor, variable overhead, and fixed overhead.)

Detailed explanation-5: -Absorption costing takes into account all production costs, unlike variable costing, which only considers variable costs. The drawbacks to absorption costing are that it can skew the picture of a company’s profitability and does not help improve operations or compare product lines.