A basic tenet of variable costing is that fixed overhead costs should be currently expensed.What is the basic rationale behind this procedure?
A)Fixed overhead costs will occur whether or not production occurs and so it presents a clearer picture of how changes in production volume affect costs and income.
B)Fixed overhead costs are generally immaterial in amount and the cost of assigning the amounts to specific products would outweigh the benefits.
C)Allocation of fixed overhead costs is arbitrary at best and could lead to erroneous decisions by management.
D)Fixed overhead costs are uncontrollable and should not be charged to a specific product.

Question

Quizplus · Accepted Answer

The basic rationale behind currently expensing fixed overhead costs in variable costing is that these costs will occur whether or not production occurs, so it presents a clearer picture of how changes in production volume affect costs and income. By expensing fixed overhead costs in the period they are incurred, rather than allocating them to specific products, management can make more informed decisions about pricing, product mix, and expansion or contraction of production volume. This approach also aligns with the principles of contribution margin analysis, which emphasizes the differences between fixed and variable costs in determining profitability.

A Basic Tenet of Variable Costing Is That Fixed Overhead