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    Question

    In absorption costing, (1) ___________are factored into

    the product's price. In contrast, only (2) _________are considered product costs in marginal costing.
    A (1) Fixed cost, (2) Variable cost Correct Answer Incorrect Answer
    B (1) Variable cost, (2) Fixed cost Correct Answer Incorrect Answer
    C (1) Variable & Fixed cost, (2) Variable cost Correct Answer Incorrect Answer
    D (1) Direct cost & (2) Indirect cost Correct Answer Incorrect Answer
    E (1) Indirect cost & (2) Direct cost Correct Answer Incorrect Answer

    Solution

    In absorption costing, both variable and fixed costs are included in the product's cost, which means that these costs are absorbed by the product. This is because absorption costing assigns all manufacturing costs to the product, including both variable and fixed costs. On the other hand, marginal costing only considers variable costs as product costs. This is because marginal costing only takes into account the costs that vary with the level of production. In other words, marginal costing only considers the direct costs associated with producing a unit of product, such as the cost of materials, direct labour, and variable overhead.

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