COST ACCOUNTING
VARIABLE COSTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Full Costing treats Manufacturing Overhead as a period cost
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Variable Costing treats Fixed Manufacturing Overhead as a period cost
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Absorption Costing only considers variable costs to calculate net income
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Variable Costing only considers variable costs to calculate net income
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Detailed explanation-1: -Absorption costing differs from variable costing because it allocates fixed overhead costs to each unit of a product produced in the period. Absorption costing allocates fixed overhead costs to a product whether or not it was sold in the period.
Detailed explanation-2: -Absorption costing entails allocating fixed overhead costs to all units produced for an accounting period. Variable costing includes all of the variable direct costs in COGS but excludes direct, fixed overhead costs.
Detailed explanation-3: -Absorption costing treats fixed manufacturing overhead as a product cost (included in inventory on the balance sheet until sold), while variable costing treats fixed manufacturing overhead as a period cost (expensed on the income statement as incurred).
Detailed explanation-4: -Variable costing treats fixed manufacturing overhead as a period cost. Thus all fixed manufacturing overhead costs are expensed in the period incurred regardless of the level of sales.
Detailed explanation-5: -Marginal costing is a technique that assumes only variable costs as product costs. Absorption costing is a technique that assumes both fixed costs and variable costs as product costs.