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Which costs are charged to the product under both absorption costing and variable costing?
AFixed factory overhead only, at a per unit rate
BFixed selling costs and fixed factory overhead
CAll factory costs plus all administrative costs
DDirect materials, direct labour and variable overhead
Answer & Solution
Correct answer: D. Direct materials, direct labour and variable overhead
1. Direct materials, direct labour and variable factory overhead are product costs under either method.
2. The only point of difference between the two methods is the treatment of fixed factory overhead.
3. Absorption costing puts fixed factory overhead into the product, variable costing does not.
4. Fixed selling costs are never a product cost under either method, so they cannot be the shared item.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.1 Introduction_
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