Question

Which of the following costs at a manufacturing company would be treated as a product cost under variable costing?

a) Variable manufacturing overhead
b) Direct labor
c) Fixed selling expenses
d) Variable administrative expenses

Answer 1

Direct labor, variable manufacturing overhead, and raw materials are treated as product costs under variable costing.

Step-by-step explanation:

Variable costs are the costs of the variable inputs (e.g., labor). The only way to increase or decrease output is by increasing or decreasing the variable inputs. Therefore, variable costs increase or decrease with output.

We treat direct labor as a variable cost, since producing a greater quantity of a good or service typically requires more workers or more work hours. Variable costs would also include variable manufacturing overhead and raw materials.

Fixed selling expenses and variable administrative expenses are not directly related to the production of goods or services and would not be considered product costs under variable costing.