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Under absorption costing, fixed manufacturing overheads are:
ACharged directly to profit and loss without affecting stock
BEliminated from costing records entirely
CTreated identically to selling and distribution overheads
DAllocated to products and included in stock valuation
Answer & Solution
Correct answer: D. Allocated to products and included in stock valuation
1. In absorption costing, all fixed and variable manufacturing overheads are allotted to cost units.
2. Fixed manufacturing overheads form part of inventory valuation (finished goods, WIP).
3. Administrative + selling and distribution overheads, by contrast, are treated as period costs.
_Source: ICMAI BoS CMA Foundation Paper 2 (Cost Accounting), Module 4 §4.1-4.2 (Methods & Systems of Costing), p. 297-308_