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Under variable costing, how is fixed factory overhead treated?
AAs a product cost held in inventory until sale
BAs a period cost charged in the period incurred
CAs a direct cost traced to each unit produced
DAs a deferred charge carried in the statement of financial position
Answer & Solution
Correct answer: B. As a period cost charged in the period incurred
1. Variable costing carries only variable manufacturing costs into inventory.
2. Fixed factory overhead is charged in full against the period in which it is incurred.
3. It is therefore expensed whether or not the units it relates to have been sold.
4. Holding fixed overhead in inventory until sale is what absorption costing does instead.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.1 Introduction_
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