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.

---

Definitions:

Organizational Performance

An evaluation of how well an organization is achieving its goals and objectives.

Competitive

The state or quality of being able to compete successfully with others, often by being more efficient, innovative, or providing better value.

Profit Sharing

A strategy where employees receive a direct share of a company's profits, typically in the form of bonuses or stocks.

Incentive Pay

A form of compensation designed to reward employees for their performance or achieving specific goals.