How Are Fixed Manufacturing Costs Handled Under Variable Costing

question 12

Multiple Choice

How are fixed manufacturing costs handled under variable costing?

• A)They are subtracted from the variable cost of goods sold to determine the ending inventory value that will be recorded on the Balance Sheet.
• B)They are not recorded, which is why variable costing is not used for external reporting.
• C)They are recorded directly on the Balance Sheet.
• D)They are treated as period costs.

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Definitions:

Budgeting

The process of creating a plan to spend your money, allocating the estimated income towards various categories of expenses.

Financial Statements

Summary reports that convey the financial activities and condition of a business or individual.

Closing Entries

Journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts.

Contra Asset Account

An account that is used to reduce the balance of a related asset account to reflect its adjusted carrying value.