ECONOMICS

Detailed explanation-1: -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: -The company uses the absorption costing method to determine the fixed overhead costs per unit. They calculate that there are $2 of fixed overhead costs that go into manufacturing each unit by dividing the fixed overhead costs by the number of units produced that month ($20, 000 / 10, 000 units = $2 per unit).

Detailed explanation-3: -Under the variable costing method, only the variable cost to produce is considered as a product cost. All other costs incurred will be treated as period costs.

Detailed explanation-4: -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.