Absorption costing splits costs based on which criterion?

Absorption costing splits costs based on which criterion?

• A. Function (production or non-production)
• B. Behaviour (variable or fixed)
• C. Time (period vs product)
• D. Department (sales vs manufacturing)

Answer: (A)

Absorption costing allocates costs by function: production costs are treated as product costs and attached to the product, while non-production costs (selling and administrative) are treated as period costs. This functional split is what determines what becomes part of inventory versus what is expensed in the period. The essential idea is that all manufacturing costs must be absorbed into the product cost, which is why the production versus non-production distinction is the basis used. Cost behavior (variable vs fixed) is relevant in other costing approaches, but it does not define how absorption costing assigns costs to products. The period versus product distinction is an outcome of that functional split, not the criterion used to allocate costs.

Absorption costing allocates costs by function: production costs are treated as product costs and attached to the product, while non-production costs (selling and administrative) are treated as period costs. This functional split is what determines what becomes part of inventory versus what is expensed in the period. The essential idea is that all manufacturing costs must be absorbed into the product cost, which is why the production versus non-production distinction is the basis used. Cost behavior (variable vs fixed) is relevant in other costing approaches, but it does not define how absorption costing assigns costs to products. The period versus product distinction is an outcome of that functional split, not the criterion used to allocate costs.