Question

Which of the following statements is true?

A. Variable costing treats fixed overhead as a period cost.

B. Absorption costing treats fixed overhead as a period cost.

C. Absorption costing treats fixed overhead as an expense in the period it is incurred.

D. Variable costing excludes all overhead from product costs.

E. Managers can manipulate earnings more easily under variable costing by varying the production level.

Answer 1

Statement A. is true

1. In Variable costing method all variable production cost is included in inventory and fixed overhead is reported as period cost(Hence A is true)
2. Where as in absorption costing fixed overhead is reported in product cost (so statements B and C are false)
3. As variable costing icludes variable production overheads in product cost, (statement D is false.)
4. Since only variable expenses are included in inventory, manager cannot manipulate earnings more easily in inventory cost, as variable expenses will be equally proportionate to production(statement E is false)