When direct costing is used, cost of goods sold reflects
A)both variable and fixed manufacturing costs.
B)variable manufacturing costs and variable selling and administrative expenses.
C)fixed manufacturing costs only.
D)variable manufacturing costs only.

Question

Quizplus · Accepted Answer

When direct costing is used, cost of goods sold only reflects variable manufacturing costs. This is because direct costing does not include fixed manufacturing costs in the cost of goods sold calculation. Instead, these costs are treated as period expenses and are expensed in the period in which they are incurred. The advantage of this approach is that it makes it easier to analyze the impact of changes in volume on profitability, since the fixed costs remain constant per period regardless of changes in production levels.

When Direct Costing Is Used, Cost of Goods Sold Reflects