Answer (D) is correct . Product costs are incurred to produce units of output. They are expensed when the product is sold. Such costs include direct materials, direct labor, and factory (not general and administrative) overhead. Period costs are charged to expense as incurred because they are not identifiable with a product. Variable costing considers only variable manufacturing costs to be product costs. Fixed manufacturing costs are considered period costs and are expensed as incurred. Selling costs are period costs under both direct and absorption costing. Thus, the entire $225,000 ($150,000 + $75,000) is classified as period costs.
Answer (A) is incorrect because Fixed manufacturing overhead is treated as a period cost under direct costing. Selling costs are period costs under both direct and absorption costing.
Answer (B) is incorrect because Fixed manufacturing overhead is treated as a period cost under direct costing. Selling costs are period costs under both direct and absorption costing.
Answer (C) is incorrect because Fixed manufacturing overhead is treated as a period cost under direct costing. Selling costs are period costs under both direct and absorption costing.
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