Which of the following statements is true for a firm that uses "direct" (variable) costing?
Product costs include "direct" (variable) administrative costs.
Profits fluctuate with sales.
An idle facility variation is calculated by a direct cost system.
The cost of a unit changes because of changes in number of units manufactured.
Profits fluctuate with sales is true for a firm that uses "direct" (variable) costing. |
Profits under direct (variable) costing are dependent on units sold. Higher the sales, higher the profit. Lower the sales. Lower the profit. |
Product costs include only Direct materials, direct labor, and variable manufacturing overhead costs under variable costing. |
Fixed manufacturing overhead costs are treated as period costs under variable costing so profit does not change with changes in number of units manufactured. |
Option B is correct |
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