A portion of the total fixed manufacturing overhead cost incurred during a period may:
A)be excluded from cost of goods sold under absorption costing.
B)be charged as a period cost with the remainder deferred under variable costing.
C)never be excluded from cost of goods sold under absorption costing.
D)never be excluded from cost of goods sold under variable costing.

Question

Quizplus · Accepted Answer

Under absorption costing, a portion of the fixed manufacturing overhead cost incurred during the period may be excluded from the cost of goods sold calculation and instead be included as part of the inventory valuation. This portion is known as the fixed overhead absorption rate and is determined by dividing the total fixed overhead costs for the period by the total production units or direct labor hours in the period. The remaining portion of the fixed manufacturing overhead cost that is not included in the absorption rate is charged directly to expense as a period cost.

A Portion of the Total Fixed Manufacturing Overhead Cost Incurred