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:

International Business

Commercial transactions that take place across national borders, encompassing exports, imports, foreign investments, and other international economic activities.

Guidelines

Recommendations or principles provided to direct actions or decisions in specific situations.

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A U.S. law that prohibits companies and their employees from making corrupt payments to foreign officials for business advantages.

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A major corruption case involving the German conglomerate Siemens AG, which was accused of using bribes to secure contracts around the world.