Variable manufacturing overhead costs are treated as period costs under both absorption and variable costing

Question

Quizplus · Accepted Answer

Variable manufacturing overhead costs are treated differently under absorption and variable costing. Under absorption costing, they are included in the cost of the product and become a part of inventory. Under variable costing, they are treated as period costs and expensed as incurred.

To compute the unit product cost under absorption costing, all manufacturing costs (including variable and fixed) are included in the cost of the product. To compute the unit product cost under variable costing, only variable manufacturing costs are included in the cost of the product, and fixed manufacturing overhead costs are treated as a period cost and expensed in the period incurred.

Variable Manufacturing Overhead Costs Are Treated as Period Costs Under