The correct answer is: C. a-3, b-1, c-4, d-2
a. Classification of costs into fixed and variable costs is called cost classification.
b. Difference between sales and variable costs is called contribution.
c. Both fixed and variable costs are charged to product is called absorption costing.
d. Relative profitability is called P/V ratio.
Cost classification is the process of grouping costs into different categories based on their behavior in response to changes in production volume. Costs can be classified into fixed costs, variable costs, and semi-variable costs.
Fixed costs are costs that do not change in total with changes in production volume. Examples of fixed costs include rent, insurance, and depreciation.
Variable costs are costs that change in total in direct proportion to changes in production volume. Examples of variable costs include direct materials and direct labor.
Semi-variable costs are costs that have both fixed and variable components. Examples of semi-variable costs include utilities and maintenance.
Absorption costing is a method of product costing that assigns all manufacturing costs, both fixed and variable, to products. This method is used for external financial reporting purposes.
Contribution is the difference between sales and variable costs. It is a measure of the amount of revenue that is available to cover fixed costs and contribute to profit.
P/V ratio is the ratio of contribution to sales. It is a measure of the sensitivity of profits to changes in sales volume.
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