Inventory under the variable costing method includes:

Question

Quizplus · Accepted Answer

Under the variable costing method, only those costs which vary with the level of production are included in inventory. Hence, the inventory includes direct materials cost, direct labor cost, and variable factory overhead cost. Fixed factory overhead cost is not included in inventory but is treated as a period cost and is expensed in the period incurred. Prime cost includes direct materials cost and direct labor cost, while conversion cost includes direct labor cost and factory overhead cost (both fixed and variable). Therefore, option B is the correct answer as it includes prime cost and variable factory overhead cost.

Inventory Under the Variable Costing Method Includes