7-3 Under absorption costing, fixed manu-
facturing overhead costs are included in product
equals sales, inventories do not increase or de-
crease and therefore under absorption costing
costs, along with direct materials, direct labor,
fixed manufacturing overhead cost cannot be
and variable manufacturing overhead. If some of
deferred in inventory or released from inventory.
the units are not sold by the end of the period,
then they are carried into the next period as
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