Absorption costing income statements:
A)Assign only direct material and direct labour costs to inventory
B)Allocate fixed production costs to inventory
C)Treat selling and administrative costs as product costs
D)Treat costs in a similar manner to variable costing income statements

Question

Quizplus · Accepted Answer

Absorption costing allocates all fixed production costs to inventory, including both direct and indirect costs. This method is required by GAAP and provides a more accurate representation of the true cost of each unit produced. However, it does not treat selling and administrative costs as product costs, as these are considered period costs and are expensed in the period they are incurred. Additionally, absorption costing is different from variable costing, which only includes variable production costs in the cost of goods sold calculation.

Absorption Costing Income Statements