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?



CharacteristicAbsorption CostingVariable Costing
Product cost:??
  Direct materialsXX
  Direct laborXX
  Variable manufacturing overheadXX
  Fixed manufacturing overheadX?
Period cost:??
  Variable selling and administrative costXX
  Fixed selling and administrative costXX
  Fixed manufacturing overhead?X
Income statement disclosure/audience:??
  Gross marginX?
  Contribution margin?X
  Lower income when inventories rise?X
  External financial-statement use X?
Changes to grid above: 
Lower income when inventories rise (NOT "net" income) 
External financial statement USE (NOT "users")

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