What is the primary difference between variable and absorption costing?
A)inclusion of fixed selling expenses in product costs
B)inclusion of variable factory overhead in period costs
C)inclusion of fixed selling expenses in period costs
D)inclusion of fixed factory overhead in product costs

Question

Quizplus · Accepted Answer

The primary difference between variable and absorption costing is the treatment of fixed factory overhead. Under variable costing, fixed factory overhead is treated as a period cost and deducted in full from revenues in the period incurred. Under absorption costing, fixed factory overhead is included in product costs and becomes a part of the inventory valuation. Therefore, the correct answer is option D, which correctly identifies that absorption costing includes fixed factory overhead in product costs. Options A and C are simply the opposite of each other and do not relate to the primary difference between variable and absorption costing. Option B is incorrect because variable factory overhead is already included in product costs under both variable and absorption costing.

What Is the Primary Difference Between Variable and Absorption Costing