CAF-5 · Chapter 9 · Question 3 of 10
In an absorption costing income statement, how are variable selling and administration expenses accounted for?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) They are treated as a period cost and deducted from the gross profit.
Explanation
Under absorption costing, only manufacturing/production costs are included in the cost of sales to arrive at Gross Profit. All non-production costs, including variable selling and administration, are period costs deducted from Gross Profit.
More Marginal Costing and Absorption Costing MCQs
- Q5Which of the following components are included in the valuation of closing inventory under absorption costing?
- Q6A company had an opening inventory of 4,000 units and a closing inventory of 6,000 units. The fixed overhead absorption rate (OAR) is Rs…
- Q7In a marginal costing income statement, what is deducted from Sales Revenue to arrive at the "Contribution Margin"?
- Q8Which of the following situations will require an adjustment for "under or over-absorbed overheads" in the income statement?
- Q9When reconciling marginal costing profit to absorption costing profit, which of the following formulas correctly calculates the difference…