Which of the following is included in the product cost under variable costing?

Variable costing (also known as direct costing) treats all fixed manufacturing costs as period costs to be charged to expense in the period received. Under variable costing, companies treat only variable manufacturing costs as product costs. The logic behind this expensing of fixed manufacturing costs is that the company would incur such costs whether a plant was in production or idle. Therefore, these fixed costs do not specifically relate to the manufacture of products.  The following video explains the concepts in variable costing:

Product costs, under variable costing, includes the VARIABLE costs only like direct materials, direct labor and variable overhead.  Fixed overhead would not be included as a product cost!  We calculate product cost per unit as:

The income statement we will use in not Generally Accepted Accounting Principles so is not typically included in published financial statements outside the company.  This contribution margin income statement would be used for internal purposes only.  You should remember, the contribution margin income statement separates variable costs and fixed costs (whether product or period does not matter) and calculates a contribution margin (this is sales – variable costs).  Now, let’s continue with our example Bradley Company.

Which of the following are included in product costs under variable costing?

What is included under variable costing?

Which of the following is not included in the product cost under variable costing?

What is included in product cost?