Consider the following comments about absorption- and variable-costing income statements:
I. A variable-costing income statement discloses a firm's gross margin.
II. Cost of goods sold on an absorption-costing income statement includes fixed costs.
III. The amount of variable selling and administrative cost is the same on absorption- and variable-costing income statements.
Which of the above statements is (are) true?
A) I only.
B) II only.
C) I and II.
D) II and III.
E) I, II, and III.

Question

Quizplus · Accepted Answer

II is true because absorption costing includes all manufacturing costs, both variable and fixed, in the cost of goods sold. III is true because variable selling and administrative costs are treated the same under both costing methods, not included in the product cost but expensed in the period incurred. I is false because a variable-costing income statement shows contribution margin, not gross margin. Gross margin is typically disclosed in an absorption-costing income statement.

Consider the Following Comments About Absorption- and Variable-Costing Income Statements