If Standard Cost Variances Are Allocated (I

question 50

Multiple Choice

If standard cost variances are allocated (i.e., prorated) to inventory and cost of goods sold (CGS) accounts at the end of a period, which of the following is correct?

• A) Conceptually, the amount allocated to each account is based on the relative amount of the current period's standard cost in the end-of-period balance in each account.
• B) The resulting balances represent relative actual cost in each of the affected accounts.
• C) There is a presumption that the net variance for the period is immaterial in amount.
• D) The amount allocated to inventories is generally larger than the amount allocated to CGS.
• E) Adjusting journal entries for income tax effects will have to be made.

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Definitions:

Overhead Cost

The ongoing, general business expenses not directly tied to producing goods or services but necessary for running the business.

Traditional Costing

A costing method that assigns factory overhead to products based on volume-related measures such as direct labor hours or machine hours.

Product B

A generic term used to differentiate one product from another in a specific context, often used for analysis, comparison, or as an example.

Direct Labor-Hours

The total hours of labor directly involved in manufacturing a product, often used as a basis for allocating overhead costs.