How are costs classified when calculating the absorption-costing income for external reporting?
A)Manufacturing costs ultimately become nonmanufacturing costs.
B)Manufacturing costs are product costs and product costs are never expensed.
C)Costs of selling manufactured products are classified as product costs.
D)Selling and administrative costs are classified as nonmanufacturing costs.

Question

Quizplus · Accepted Answer

Selling and administrative costs are not part of the manufacturing process and therefore are classified as nonmanufacturing costs for purposes of calculating absorption-costing income for external reporting. Option A is incorrect as manufacturing costs are always classified as product costs regardless of whether they become nonmanufacturing costs later on. Option B is incorrect as product costs are eventually expensed when the product is sold, but they are initially capitalized. Option C is incorrect as costs of selling the manufactured products are not part of the manufacturing process and should not be classified as product costs.

How Are Costs Classified When Calculating the Absorption-Costing Income for External