COST ACCOUNTING
VARIABLE COSTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Depreciation expense is always a product cost.
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Depreciation expense is always a period cost.
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Selling and administrative costs, whether variable or fixed, is always treated as period costs under both the absorption and variable costing systems.
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Income under absorption costing is always greater than income under variable costing.
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Detailed explanation-1: -Both costing methods consider fixed manufacturing overhead to be product costs. Option C. Both costing methods consider selling and administrative costs to be period costs. is the correct answer. Under both methods, selling and administrative costs are considered period costs.
Detailed explanation-2: -Under variable costing, fixed manufacturing overhead is treated as a period cost and is charged in full against the current period’s income. 7-2 Selling and administrative expenses are treated as period costs under both variable costing and absorption costing.
Detailed explanation-3: -Selling, General & Administrative Expense (SG&A) Explained Many SG&A line items, such as rent and base salaries, are fixed costs that must be paid regardless of production or sales volumes. Other SG&A costs, such as distribution costs, are variable and typically change as sales volumes rise or fall.
Detailed explanation-4: -The correct answer is option a. In variable costing all flexible costs are included in the inventory and fixed cost is reported as that of the period costs.
Detailed explanation-5: -Under variable costing, variable production costs are not treated as product costs. 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.