In absorption costing fixed production costs are

In absorption costing fixed production costs are

• A. Period costs
• B. Direct costs
• C. Variable costs
• D. Product costs

Answer: (B)

In absorption costing, all manufacturing costs are attached to the product. Fixed production costs, such as factory rent, salaries of production supervisors, and depreciation of production equipment, are included as part of the cost of manufacturing. These costs become product costs because they are incurred to produce goods and are carried in inventory until the goods are sold, at which point they become part of cost of goods sold. They are not period costs (those are selling and administrative expenses charged in the period incurred), and they are not direct costs (direct costs can be traced to a specific product). They aren’t variable costs either because fixed costs do not change with the level of production. So, fixed production costs are treated as product costs in absorption costing.

In absorption costing, all manufacturing costs are attached to the product. Fixed production costs, such as factory rent, salaries of production supervisors, and depreciation of production equipment, are included as part of the cost of manufacturing. These costs become product costs because they are incurred to produce goods and are carried in inventory until the goods are sold, at which point they become part of cost of goods sold.

They are not period costs (those are selling and administrative expenses charged in the period incurred), and they are not direct costs (direct costs can be traced to a specific product). They aren’t variable costs either because fixed costs do not change with the level of production.

So, fixed production costs are treated as product costs in absorption costing.