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.

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Definitions:

Wundt

Wilhelm Wundt, often regarded as the father of experimental psychology, who established the first psychology laboratory in Leipzig, Germany, in 1879.

Nature-Nurture

A debate concerning the relative importance of an individual's innate qualities versus personal experiences in determining or causing differences in physical and behavioral traits.

Stability-Change

A debate within the field of psychology that concerns whether and how much personal characteristics and behavior change or remain stable throughout a person's life.

Person-Situation

Refers to the debate in psychology about the relative influence of personal traits versus situational factors on human behavior.