The only difference between variable and absorption costing is the expensing of:
A)variable marketing costs.
B)direct manufacturing costs.
C)fixed manufacturing costs.
D)Both A and C are correct.

Question

Quizplus · Accepted Answer

The only difference between variable and absorption costing is the way fixed manufacturing costs are expensed. Under variable costing, only variable manufacturing costs (direct materials, direct labor, and variable overhead) are included in the cost of goods sold while fixed manufacturing costs are considered period costs and expensed in the period incurred. Under absorption costing, all manufacturing costs (both fixed and variable) are included in the cost of goods sold. Therefore, the correct answer is C, which refers to the expensing of fixed manufacturing costs. Choice A (variable marketing costs) is not relevant to either costing method and choice D is incorrect because variable manufacturing costs are expensed in both variable and absorption costing.

The Only Difference Between Variable and Absorption Costing Is the Expensing