Question

Under absorption costing fixed manufacturing overhead costs_______________.

a. Are deferred in inventory when production exceeds sales
b. Are always treated as period costs
c. Are released from inventory when production exceeds sales
d. Are ignored

Answer 1

a. Are deferred in inventory when production exceeds sales

Step-by-step explanation:

• When the units of production are sold the fixed and manufacturing and the overhead cost gets carried towards the other units and is included as parts of that time as the cost of goods sold.

• And this indicates that the manufacturing cost haves been involved in the units of production. Thus the cost of the finished product will include the direct labor matter and labor costs and plus the manufacturing overhead.