What is the difference between full absorption costing and variable costing?
A)In full absorption costing,all of the non-manufacturing costs are expensed.In variable costing,all of the non-manufacturing expenses are included in the cost of the product.
B)In full absorption costing,fixed manufacturing overhead is expensed.In variable costing,fixed manufacturing overhead is included in the cost of the product.
C)In full absorption costing,fixed manufacturing overhead is included in the cost of the product.In variable costing,fixed manufacturing overhead is expensed.
D)Variable costing must be used for external financial reports while full absorption costing can only be used for internal reporting.

Question

Quizplus · Accepted Answer

The main difference between full absorption costing and variable costing is how they treat fixed manufacturing overhead. In full absorption costing, fixed manufacturing overhead is included in the cost of the product, while in variable costing, it is expensed. This means that in full absorption costing, the cost of the product includes both variable and fixed costs, while in variable costing, it only includes variable costs. This can lead to different results in terms of product profitability and inventory valuation. Options A and B are incorrect as they provide incorrect information about the treatment of non-manufacturing costs and fixed manufacturing overhead. Option D is also incorrect as both full absorption costing and variable costing can be used for both internal and external reporting, but they may lead to different results.

What Is the Difference Between Full Absorption Costing and Variable