Under absorption costing, fixed manufacturing overhead costs:
A)are deferred in inventory when production exceeds sales.
B)are always treated as period costs.
C)are released from inventory when production exceeds sales.
D)are ignored.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of the product and are deferred in inventory when production exceeds sales, and released when sales exceed production. This is because fixed manufacturing overhead costs are considered to be a necessary part of producing goods and are allocated to each unit produced. As a result, these costs are only recognized as expenses when the products are sold, and until then they remain in inventory.

Under Absorption Costing, Fixed Manufacturing Overhead Costs