Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 41

Which of the following is classified as a product cost using the variable costing method?
1. Direct labor costs.
2. Insurance on a factory.
3. Manufacturing supplies.
4. Packaging and shipping costs.

Answer options

• A. 1 and 2.
• B. 1 and 3.
• C. 2 and 4.
• D. 3 and 4.

Correct answer: D

Explanation

The correct answer is D, as packaging and shipping costs (3 and 4) are variable costs directly associated with the product. In contrast, direct labor costs (1) and insurance on a factory (2) are typically classified as fixed costs and do not fall under product costs using the variable costing method.