COST ACCOUNTING
VARIABLE COSTING
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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only variable production costs
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only direct costs
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all variable costs
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all variable and fixed production costs
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Detailed explanation-1: -The product costs under the direct costing. Under the direct costing model, only variable production costs such as direct materials, direct labor, and variable factory overhead are included in the determination of the product costs.
Detailed explanation-2: -Both product costs and period costs directly affect your balance sheet and income statement, but they are handled in different ways. Product costs are always considered variable costs, as they rise and fall according to production levels.
Detailed explanation-3: -Direct costs are often variable costs, meaning they fluctuate with production levels such as inventory. However, some costs, such as indirect costs are more difficult to assign to a specific product. Examples of indirect costs include depreciation and administrative expenses.
Detailed explanation-4: -Product costs, under variable costing, includes the VARIABLE costs only like direct materials, direct labor and variable overhead. Fixed overhead would not be included as a product cost! We calculate product cost per unit as: Direct Materials. + Direct Labor.