CHAPTER 7 -Absorption v Variable Costing

Question 1

Absorption Costing

Answer 1

All Manufacturing OH as part of product cost.

Question 2

Variable Costing

Answer 2

Variable manufacturing OH as part of the product cost.

Fixed manufacturing OH treated as a period cost (expensed in the period incurred)

Question 3

Product cost -> Inventory ->COGS

Answer 3

expense only in period when goods sold

Question 4

Absorption Costing Product (inventoriable) cost

Answer 4

-Direct Material
-Direct Labour
-Variable manufacturing OH
-Fixed Manufacturing OH

Question 5

Variable Costing Product (inventoriable) cost

Answer 5

-Direct Material
-Direct Labour
-Variable manufacturing OH

*Variable product costs are not acceptable for external financial reporting. Both the IRd and RRS require absorption costing.