How are fixed manufacturing costs handled under variable costing?
A)They are subtracted from the variable cost of goods sold to determine the ending inventory value that will be recorded on the Balance Sheet.
B)They are not recorded, which is why variable costing is not used for external reporting.
C)They are recorded directly on the Balance Sheet.
D)They are treated as period costs.

Question

Quizplus · Accepted Answer

Fixed manufacturing costs are treated as period costs under variable costing and are expensed in the period in which they are incurred, rather than being allocated as part of the cost of goods sold. This approach allows for a more accurate measurement of the contribution margin and net income, as it only includes those costs that vary with changes in production levels. However, fixed manufacturing costs must still be accounted for in the overall cost structure of the company, and may affect decisions related to pricing, product mix, and capacity utilization.

How Are Fixed Manufacturing Costs Handled Under Variable Costing