In absorption costing (also called full costing), fixed manufacturing overhead is treated as a product cost rather than a period cost. This means it is assigned to the cost of goods manufactured and included in inventory until the product is sold. Since fixed manufacturing overhead costs (e.g., factory rent, depreciation, and supervisor salaries) do not directly trace to specific units of production, they are classified as indirect product costs.
Under absorption costing fixed manufacturing overhead is allocated to the units produced and it is best classified as an indirect product cost. It is indirect because it is not directly traceable to a specific unit and a product cost because it allocated to the product.
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