Absorption costing defers the fixed manufacturing costs in ending inventory to a future period, but variable costing expenses these costs in the current period.

Question

Quizplus · Accepted Answer

This is a correct statement about the difference between absorption costing and variable costing. Absorption costing includes fixed manufacturing overhead costs in the inventory valuation and defers them to future periods. In contrast, variable costing only includes variable manufacturing costs in the cost of goods sold and treats fixed manufacturing costs as period expenses.

Absorption Costing Defers the Fixed Manufacturing Costs in Ending Inventory