The two main methods for dealing with fixed costs in relation to the production of inventory are:
A) variable costing and incremental costing.
B) absorption costing and direct costing.
C) overhead costing and ABC costing.
D) relevant costing and incremental costing.

Question

Quizplus · Accepted Answer

Absorption costing and direct costing are the two main methods for dealing with fixed costs in relation to the production of inventory. Absorption costing considers all manufacturing costs, including fixed costs, as part of the cost of the product. Direct costing, on the other hand, only considers variable costs as part of the cost of the product and treats fixed costs as period costs. Both methods have their advantages and disadvantages, and the choice between the two depends on various factors such as the nature of the business, industry practices, and management preferences.

The Two Main Methods for Dealing with Fixed Costs in Relation