LO 6.5Under absorption costing, a unit of product includes which costs?

direct material, direct labor, and manufacturing overhead

direct material, direct labor, and variable manufacturing overhead

direct material, direct labor, and fixed manufacturing overhead

direct material, direct labor, and all variable manufacturing overhead

Answer: direct material, direct labor, and fixed manufacturing overhead

Explanation: In calculating product cost in a manufacturing environment, there are two types of costing namely the variable costing method and absorption costing method.

Under absorption costing, a unit of product includes direct materials, direct labour, variable overheads and all fixed manufacturing overhead.

under this method, all variable cost as well as fixed cost are all included in the cost of a product.

Absorption costing is required by GAAP and so has to be using in preparing the financial accounts.