Which of the following statements is correct using the direct costing concept?
a.Only fixed costs are included in the calculation of cost of goods manufactured while variable costs are considered period costs.
b.Only variable manufacturing costs are included in the calculation of cost of goods manufactured while fixed costs are considered period costs.
c.All manufacturing costs are considered period costs.
d.All manufacturing costs are included in the calculation of cost of goods manufactured.
The answer is Option b. | |||||||||||||
The following statement is correct using the direct costing concept, | |||||||||||||
b.Only variable manufacturing costs are included in the calculation of cost of goods manufactured while fixed costs are considered period costs. | |||||||||||||
Direct costing also called as variable costing only assigns variable costs to inventory and cost of goods sold.Fixed Manufacturing cost | |||||||||||||
are treated as period cost.This method is used by the management for internal use purpose only. For external use, only absorption | |||||||||||||
costing method is allowed which treats the fixed manufacturing cost as product cost. | |||||||||||||
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