Absorption costing allocates all manufacturing costs to products

Steps:

• Define absorption costing: it treats both variable and fixed manufacturing costs as product costs.
• Identify product costs: these include direct materials, direct labor (variable manufacturing), and overhead (fixed and variable manufacturing).
• Determine cost of sales: it comprises product costs of goods sold, excluding period costs like selling expenses.
• Exclude non-manufacturing costs: selling costs are expensed immediately, not inventoried.

Why B is correct:

• Absorption costing requires including all manufacturing costs (variable and fixed) in inventory and thus in cost of sales, per standard accounting principles.

Why the others are wrong:

• A: Selling costs are period costs, not part of product costs or cost of sales.
• C: Fixed manufacturing costs must be included as product costs in absorption costing.
• D: Fixed manufacturing costs are also absorbed into product costs, not excluded.

Final answer: B