Variable selling and administrative expenses are part of product costs under the variable costing approach

Question

Quizplus · Accepted Answer

Variable selling and administrative expenses are not part of product costs under the variable costing approach.

Variable costing differs from absorption costing in the way it treats fixed manufacturing overhead costs. Under variable costing, fixed manufacturing overhead costs are treated as period costs and are not included in the unit product cost. Instead, these costs are expensed as incurred. Absorption costing, on the other hand, includes fixed manufacturing overhead costs in the unit product cost.
 
To compute the unit product cost under each method:
- Under variable costing: direct materials + direct labor + variable manufacturing overhead.
- Under absorption costing: direct materials + direct labor + variable manufacturing overhead + fixed manufacturing overhead.

Variable Selling and Administrative Expenses Are Part of Product Costs