EXERCISE 7-8 (30 MINUTES)

1. Under variable costing, only the variable manufacturing costs are in-

cluded in product costs.

Direct materials ... $ 50

Direct labor ... 80

Variable manufacturing overhead ... 20

Unit product cost ... $150

Note that selling and administrative expenses are not treated as product

costs; that is, they are not included in the costs that are inventoried.

These expenses are always treated as period costs and are charged

against the current period’s revenue.