7-5 Advocates of variable costing argue that
and variable costing is due to the handling of
fixed manufacturing costs are not really the cost
fixed manufacturing overhead. Under absorption
of any particular unit of product. If a unit is
made or not, the total fixed manufacturing costs
costing, fixed manufacturing overhead is treated
will be exactly the same. Therefore, how can
as a product cost and hence is an asset until
products are sold. Under variable costing, fixed
one say that these costs are part of the costs of
the products? These costs are incurred to have
manufacturing overhead is treated as a period
the capacity to make products during a particu-
cost and is charged in full against the current
lar period and should be charged against that
period’s income.
period as period costs according to the matching
principle.
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