The cost of manufactured products consists of direct materials, direct labor, and factory overhead. The reporting of all these costs in financial statements is called absorption costing. Absorption costing is required under generally accepted accounting principles for financial statements distributed to external users. However, alternative reports may be prepared for decision-making purposes by managers and other internal users. One such alternative reporting is variable costing or direct costing.
In variable costing, the cost of goods manufactured is composed only of variable costs. Thus, the cost of goods manufactured consists of direct materials, direct labor, and variable factory overhead. In a variable costing income statement, fixed factory overhead costs do not become a part of the cost of goods manufactured. Instead, fixed factory overhead costs are treated as period expenses.
The primary difference between absorption and variable costing is that absorption costing considers fixed overhead a Select fixed cost period cost product cost non-relevant cost Correct 1 of Item 1 and variable costing considers fixed overhead a Select fixed cost period cost product cost non-relevant cost Correct 2 of Item 1. The only item that is a period cost for both costing methods is Select direct labor direct materials fixed over head selling and administrative expenses variable over head Correct 3 of Item 1.
Determining Costs under Absorption and Variable Costing
Ross Company began its operations in the current year. It manufactures and sells only one product. During the year, Ross produced 157,500 units and sold 127,500 units at $425 each.
At the beginning of the year, Ross estimated that it would produce 165,000 units.
Determine the unit cost for Ross under both absorption and variable costing.
Because fixed overhead allocation is based on a predetermined rate, which is set during planning at the beginning of the period, the amount to be allocated per unit will be based on Select actual planned unknown Correct 1 of Item 2 production, but only in the case of fixed overhead being classified as a Select period product Correct 2 of Item 2 cost.

If an amount is zero, enter "0".

The difference between unit costs under absorption costing and variable costing is the classification of what cost? Select direct labor direct materials Fixed over head selling and administrative Variable over head Correct 13 of Item 2
Under absorption costing, this cost is classified as a Select product period Correct 14 of Item 2 cost.
How many units did Ross have in ending inventory? Units
What is the value of Ross's ending inventory under absorption costing? $
What is the value of Ross's ending inventory under variable costing? $

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Variable Costs Direct materials $68 Direct labor 51 Variable overhead 17 Fixed Costs Fixed overhead costs $5,610,000 Fixed selling and administrative 7,012,500 expenses