Absorption and Variable Costing

Question 1

Absorption Costing

Answer 1

Direct Materials,
Direct Labour,
Fixed manufacturing overhead,
Variable manufacturing overhead
↓
Product costs

Selling and administrative expenses→Period Cost

Question 2

Variable Costing

Answer 2

Direct materials,
Direct labour,
Variable manufacturing overhead
↓
Product costs

Fixed manufacturing overhead,
Selling and administrative expenses
↓
Period Cost

Question 3

Difference between absorption and variable costing

Answer 3

Fixed manufacturing overhead

Product cost for absorption costing and period cost for variable costing

Question 4

JIT Inventory methods

Answer 4

Production tends to equal sales so the difference between variable and absorption incomes tends to disappear.