The table that follows denotes selected characteristics of absorption costing and/or variable costing.CharacteristicAbsorption CostingVariable CostingProduct cost:?? Direct materials?? Direct labor?? Variable manufacturing overhead?? Fixed manufacturing overhead??Period cost:?? Variable selling and administrative cost?? Fixed selling and administrative cost?? Fixed manufacturing overhead??Income statement disclosure/audience:?? Gross margin?? Contribution margin?? Lower net income when inventories rise?? External financial-statement users ??Required: Evaluate each product-cost, period-cost, and income-statement/disclosure characteristic and determine whether it relates to
absorption costing, variable costing, or both methods. Place an "X" in the proper column.
What will be an ideal response?
| Characteristic | Absorption Costing | Variable Costing |
| Product cost: | ? | ? |
| Direct materials | X | X |
| Direct labor | X | X |
| Variable manufacturing overhead | X | X |
| Fixed manufacturing overhead | X | ? |
| Period cost: | ? | ? |
| Variable selling and administrative cost | X | X |
| Fixed selling and administrative cost | X | X |
| Fixed manufacturing overhead | ? | X |
| Income statement disclosure/audience: | ? | ? |
| Gross margin | X | ? |
| Contribution margin | ? | X |
| Lower income when inventories rise | ? | X |
| External financial-statement use | X | ? |
Lower income when inventories rise (NOT "net" income)
External financial statement USE (NOT "users")
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