Question

Which of the following best describes costs assigned to the product under the absorption costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative (VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)

Answer 1

Answer:

The correct answers are:

• Direct labor (DL) -  The wage costs for workers who directly took part in the production process.
• Direct materials (DM) - The costs of raw materials that were transformed into the product during the production process.
• Variable manufacturing overhead (VOH) - Overhead costs are included in this valuation method. Variable overhead corresponds to costs that vary depending on ouput. For example, the more a factory produces, the higher the electricity bill will likely be.
• Fixed manufacturing overhead (FOH) - These costs are independent of output level. Rent is the most obvious example. It does not matter how many products a factory produces, it will still have to pay rent.