Assuming That Direct Labor Is a Variable Cost, the Primary

question 116

Multiple Choice

Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that:

• A) variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials, direct labor, and the variable portion of manufacturing overhead as product costs.
• B) variable costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs.
• C) variable costing treats only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.
• D) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.

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Definitions:

MasterCard and VISA

Major global payment networks and companies facilitating electronic funds transfers through branded credit, debit, and prepaid cards.

Service Fee

A charge for the provision of a service, often separate from the cost of goods sold.

FOB Destination

A shipping term indicating that the seller bears freight charges and retains ownership of goods in transit until they are delivered and accepted by the buyer.

Perpetual Inventory System

A method of inventory management where updates are made continuously to record sales and purchases.