How are fixed overhead costs shifted from one period to another under absorption costing?

Fixed manufacturing overhead costs are monthly or annual expenses that remain constant regardless of
production volume or the total number of our production equipment was in operation. Example like,
property tax, rent, and depreciation on factory etc., that have been assigned to (absorbed by) the
products manufactured via a predetermined rate. Absorption costing treats all manufacturing costs as
product costs, regardless of whether they are variable or filed. Allocation allows for fixed overhead costs
to be absorbed into and eventually become part of the cost of goods sold for each unit of production. If
an item or unit of production is either sold straight from the production line or within the same
reporting period, allocated overhead costs are charged against income as part of the cost of goods sold
and reported that way on the income statement prepared for that reporting period. If not, however, the
fixed manufacturing overhead costs allocated to the items or units of production remains in the
inventory account, become part of the inventory valuation and are reported that way on the balance
sheet for the current reporting period. When the items or units are eventually sold, the fixed
manufacturing overhead cost attached to each is shifted from the inventory account to the cost of goods
sold, charged against income as part of the cost of goods sold and reported that way on the income
statement prepared for the current reporting period.

Fixed manufacturing overhead costs are shifted from one period to another due to changes in
inventories under absorption costing. Every unit that is produced is assigned some fixed manufacturing
overhead costs. Assuming that the said unit is not sold during that period, the fixed manufacturing cost
assigned to that unit will then become part of the inventory and reported on the balance sheet and not
the cost of goods sold.

WHAT IS A TRACEABLE FIXED COST?

A traceable fixed cost is directly attributable to a specific segment, product, or department within a
company. In other words, it is an expense associated with a responsibility center. Traceable fixed costs
are the direct opposite of common fixed costs. These costs are easier to manage in managerial
accounting as companies can trace them to their origin.

WHAT IS A COMMON FIXED COST?

Common fixed costs are similar to direct costs. These costs are not directly traceable to specific
segments, products, or departments. In other words, these are expenses not directly associated with a
responsibility center. Instead, various centers share these costs. An example of these costs is utilities,
where several departments or segments use the same connection.

Like traceable fixed costs, common fixed costs affect management decisions. However, companies must
allocate and divide these costs before further analysis. Usually, companies use costing methods and
techniques to assign common costs to the responsibility centers. While still fixed, these costs may differ
from one department to another based on the allocation basis used.