Some Accountants Would Argue That Any Variances from Standard Costs

question 117

Multiple Choice

Some accountants would argue that any variances from standard costs, when such standards are current, should be written off to Cost of Goods Sold (or other income statement account) . The principal conceptual rationale for this treatment is:

• A) This is the treatment required currently under generally accepted accounting principles in the U.S.
• B) To allocate such variances (as the alternative treatment) implies that asset values on the balance sheet (i.e., inventories) contain the cost of inefficiencies.
• C) The negligible effect this treatment has on total Cost of Goods Sold (or the Income Statement) for the period.
• D) The increased information and insight this procedure provides to management, for better managing operations.
• E) Simplicity of application—this is an expedient method.

Recognize the conditions and calculations related to a firm’s shutdown point.

Calculate and evaluate the financial requirements to achieve a desired return on investment in diverse business scenarios.

Analyze market demands and price changes to determine their effects on firm production and profitability.

Understand the long-term consequences of market changes on firm entry, exit, and production adjustments.

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Definitions:

Subduction

The process by which one tectonic plate moves under another, sinking into the mantle due to gravitational forces.

Conduction

Transfer of thermal energy by direct contact.

Transformation

The process of change in form, appearance, nature, or character.

Convergence

The coming together of tectonic plates, often resulting in mountain building, earthquakes, and volcanic activity.