The Most Widely Used Approach to Disposing of Overhead Variances

question 116

Multiple Choice

The most widely used approach to disposing of overhead variances is:

• A) to capitalize it as a cost of finished goods inventory
• B) proration
• C) to allocate it between cost of goods sold and finished goods inventory
• D) immediate write- off

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Definitions:

Business Inventory

Items that are held by a business for the purpose of sale or production.

Trade or Business

An activity conducted for the purpose of earning income from selling goods or services, characterized by regularity and continuity.

Depreciation

The accounting process of allocating the cost of a tangible asset over its useful life, representing the decrease in value of the asset over time.

Section 1231

Refers to a tax provision in the United States that includes the tax treatment of gains and losses on the sale or exchange of real or depreciable property used in a trade or business and held for more than one year.