Discuss the Three Ways in Which GAAP Allows Value Changes

question 33

Essay

Discuss the three ways in which GAAP allows value changes to be treated in the financial statements.Provide an example of each value change treatment.

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Definitions:

Variable Costing

A costing method in which variable manufacturing costs are treated as product costs while fixed manufacturing overheads are treated as period costs.

Predetermined Overhead Rate

A calculated rate used in cost accounting to allocate overhead costs to products or services, based on estimated overhead costs and activity levels.

Direct Labour Hours

The total hours worked by employees who are directly involved in the production process of a company.

Underapplied Overhead

Occurs when the allocated manufacturing overhead costs are less than the actual overhead costs incurred.