Absorption Costing Key Features

Steps:

• Identify absorption costing as a method that allocates both variable and fixed manufacturing overheads to products.
• Evaluate statements based on standard definitions: fixed overheads are included in inventory, not treated as period costs.
• Check which statements align: correct ones typically affirm fixed overhead absorption and inventory valuation rules.
• Select option pairing the two accurate statements.

Why D is correct:

• Absorption costing requires fixed production overheads to be absorbed into unit costs (per CIMA definition), matching statements 2 and 4.

Why the others are wrong:

• A pairs 1 (likely incorrect, e.g., variable costs as period) with 3.
• B pairs 1 with 4 (includes wrong statement 1).
• C pairs 2 with 3 (3 likely misstates overhead treatment).

Not enough information on exact statements 1–4 to confirm details.

Final answer: D