ECONOMICS

Detailed explanation-1: -Inventory costs under variable costing include only direct materials, direct labor, and variable factory overhead. If the number of units produced in a period is larger than the number of units sold in a period, absorption costing income will be higher than variable costing income.

Detailed explanation-2: -The value of inventory under absorption costing includes direct material, direct labor, and all overhead. The difference in the methods is that management will prefer one method over the other for internal decision-making purposes. The other main difference is that only the absorption method is in accordance with GAAP.

Detailed explanation-3: -Variable costing is a methodology that only assigns variable costs to inventory. This approach means that all overhead costs are charged to expense in the period incurred, while direct materials and variable overhead costs are assigned to inventory.

Detailed explanation-4: -Which of the following statements is true regarding variable costing? Only manufacturing costs that change in total with changes in production level are included in product costs.

Detailed explanation-5: -Variable costing requires that all variable production costs be included in inventory, and all fixed production costs (fixed manufacturing overhead) be reported as period costs. Thus all fixed production costs are expensed as incurred.