ECONOMICS

Detailed explanation-1: -Under absorption costing, fixed manufacturing overhead is treated as a product cost and hence is an asset until products are sold. Under variable costing, fixed manufacturing overhead is treated as a period cost and is charged in full against the current period’s income.

Detailed explanation-2: -Note that selling and administrative expenses are not treated as product costs under either absorption or variable costing. These expenses are always treated as period costs and are charged against the current period’s revenue. 1. 2, 000 units in ending inventory × R60 fixed manufacturing overhead per unit = R120, 000.

Detailed explanation-3: -Under variable costing, fixed manufacturing overhead cost is not treated as a product cost. The costs assigned to units in inventory are typically lower under variable costing than under absorption costing. Direct materials is considered to be a product cost under variable costing but not absorption costing.

Detailed explanation-4: -With variable costing, fixed manufacturing overhead costs are treated as period costs and therefore are always expensed in the period incurred. Because all other costs are treated the same regardless of the costing method used, profit is identical when the number of units produced and sold is the same.