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:

Natural Monopoly

A market in which a single firm can provide a good or service at a lower cost than any potential competitor, due to economies of scale.

Lower Cost

A situation where the expenses involved in producing a good or service are reduced, leading to potential savings.

Social Regulation

Rules imposed by government aimed at improving societal welfare, focusing on areas such as health, safety, and the environment, rather than on economic matters.

Natural Monopoly

A market structure where a single firm can produce at a lower cost than can two or more firms, justifying limited competition.