A basic tenet of variable costing is that fixed manufacturing overhead costs be currently expensed. What is the rationale behind this?
A) Fixed manufacturing overhead costs occur regardless of level of production.
B) Fixed manufacturing overhead costs are generally immaterial in amount.
C) Allocation of fixed manufacturing costs are arbitrary at best.
D) Fixed manufacturing costs change as production changes.

Question

Quizplus · Accepted Answer

The rationale behind expensing fixed manufacturing overhead costs in variable costing is that these costs occur regardless of the level of production. Therefore, they should not be allocated to units of production and included in the cost of goods sold calculation, as this can lead to distorted profitability analysis. By expensing fixed manufacturing overhead costs in the period incurred, variable costing provides a more accurate reflection of the true cost of production during a given period.

A Basic Tenet of Variable Costing Is That Fixed Manufacturing