Final answer:
Fixed Manufacturing Overhead costs are included in WIP inventory under absorption costing, a method that considers all manufacturing costs. Variable costing, on the other hand, treats fixed MOH costs as period costs and does not include them in WIP inventory.
Step-by-step explanation:
Fixed MOH costs (Manufacturing Overhead costs) are included as part of WIP inventory (Work-in-Process inventory) under absorption costing only. Absorption costing, also known as full costing, is an accounting method that captures all of the manufacturing costs associated with a product.
This includes direct materials, direct labor, and both variable and fixed manufacturing overhead costs. Contrastingly, variable costing, the alternative to absorption costing, includes only the variable manufacturing costs in the WIP inventory. Fixed manufacturing overhead costs in variable costing are treated as period costs and are expensed in the period they are incurred.