1.(TRUE or FALSE) In Variable Costing FOH is treated as a period cost and NOT deferred...

1.(TRUE or FALSE) In Variable Costing FOH is treated as a period cost and NOT deferred to a follow on period.

2.(TRUE or FALSE) In Absorption Costing if production is greater than sales inventory goes up and those costs are deferred to another reporting period.

Solutions

Expert Solution

This statement is true that in Variable Costing FOH is treated as a period cost and NOT deferred to a follow on period.

Explanation

This is because period costs are such costs which are allocated to a certain period of time, no production level or sales volume is considered in period costs. These costs are charged against current revenues.

Also these costs reduces the income of current periods and are not deferred to a follow on period.

This statement is false that in Absorption Costing if production is greater than sales inventory goes up and those costs are deferred to another reporting period.

Explanation

This is because absorption costing charges all the costs related to the products in the period in which they are produced. It does not matter in absorption costing that production is greater than sales and inventory goes up.

Those costs associated with this products produced more than sales cannot be deferred to another reporting period.
Absorption costing does not depends upon whether the products are sold in the periods are produced or not.

All the costs are included in the ending inventory under absorption costing.

ekkarill92 answered 11 months ago

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