ECONOMICS

Detailed explanation-1: -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-2: -Absorption costing includes anything that is a direct cost in producing a good in its cost base. Absorption costing also includes fixed overhead charges as part of the product costs.

Detailed explanation-3: -Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory overhead. In variable costing, the cost of products manufactured is composed of only those manufacturing costs that increase or decrease as the volume of production rises or falls.

Detailed explanation-4: -Answer C. Variable manufacturing overhead is not a product cost under absorption costing.

Detailed explanation-5: -Which of the following is a true statement regarding absorption and/or direct costing?-Absorption costing includes fixed overhead in product costs whereas direct costing does not.