Which of the following costing methods charges all manufacturing costs, including both variable and fixed manufacturing overhead, to its products?

• A. Direct costing
• B. Marginal costing
• C. Absorption costing
• D. Variable costing

Answer: (C)

Verified step by step guidance

1. Understand the concept of Absorption Costing: Absorption costing is a method where all manufacturing costs, including both variable and fixed manufacturing overhead, are allocated to the cost of the product. This contrasts with methods like variable costing, which only includes variable manufacturing costs.
2. Review the key differences between costing methods: Direct costing and marginal costing focus on variable costs, while absorption costing includes both variable and fixed costs. Variable costing excludes fixed manufacturing overhead from product costs.
3. Identify the components of manufacturing costs: Manufacturing costs typically include direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. Absorption costing ensures all these costs are charged to the product.
4. Understand why absorption costing is used: Absorption costing is often required for external financial reporting and tax purposes because it provides a more comprehensive view of product costs by including fixed overhead.
5. Relate the question to the concept: Based on the explanation, absorption costing is the correct method that charges all manufacturing costs, including both variable and fixed manufacturing overhead, to its products.