Answer (D) is correct . Under an absorption costing system, inventoriable (product) costs include all costs necessary for good production. These include direct materials and conversion costs (direct labor and overhead). Both fixed and variable overhead is included in inventory under an absorption costing system. Inventoriable costs are treated as assets until the products are sold because they represent future economic benefits. These costs are expensed at the time of sale.
Answer (A) is incorrect because Overhead costs as well as prime costs (direct materials and labor) are included in inventory.
Answer (B) is incorrect because Materials costs are also included.
Answer (C) is incorrect because Inventory costs are expensed when the goods are sold, not when they are transferred to finished goods.
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