Question

Which of the following are considered to be product costs under absorption costing? I. Variable manufacturing overhead. II. Fixed manufacturing overhead. III. Selling and administrative expenses.

Answer 1

Answer:

I and II

Explanation:

The key costs assigned to products under an absorption costing system are:

• Direct materials. Those materials that are included in a finished product.

• Direct labor. The factory labor costs required to construct a product.

• Variable manufacturing overhead. The costs to operate a manufacturing facility, which vary with production volume. Examples are supplies and electricity for production equipment.

• Fixed manufacturing overhead. The costs to operate a manufacturing facility, which do not vary with production volume. Examples are rent and insurance.