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    Question

    What is absorption costing?

    A A costing method where only variable costs are assigned to production Correct Answer Incorrect Answer
    B A costing method where both fixed and variable costs are assigned to units of production Correct Answer Incorrect Answer
    C A costing method that excludes overhead costs Correct Answer Incorrect Answer
    D A costing method focusing only on direct labor costs Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Explanation:  
    Absorption costing (also known as full costing) assigns all manufacturing costs —both fixed and variable—to units of production. This means that direct materials, direct labor , variable overhead, and fixed overhead are included in product cost. It contrasts with variable costing , which only assigns variable costs to production and treats fixed costs as period expenses.  

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