| Book Edition | 17th Edition |
| Author(s) | Datar, Rajan |
| ISBN | 9780135628478 |
| Publisher | Pearson |
| Subject | Accounting |
Manufacturing costs are of two types, which are fixed and variable.
The method of accounting treatment of fixed manufacturing costs differentiates between the two methods of costing. Under variable costing, the fixed manufacturing cost does not include inventoriable costs and it is considered as an expense in the period in which it is occured.
On the other hand, under the absorption costing, the fixed manufacturing costs are considered as inventoriable costs and it is included in the cost of goods sold at the time when the product is sold.
Treatment of fixed manufacturing cost creates a difference between variable costing and absorption costing. Under the absorption costing, fixed manufacturing costs are considered as inventoriable costs and become part of COGS at the time of sale. On the other hand, under the variable costing, it is expensed in the period in which it is incurred.