When Using the Average-Cost Method to Determine the Cost of Inventory

question 109

Multiple Choice

When using the average-cost method to determine the cost of inventory, the average cost per unit is calculated as the cost of goods:

• A)in ending inventory, divided by the number of units in ending inventory.
• B)sold, divided by the number of units sold.
• C)available for sale, divided by the number of units available for sale.
• D)sold, divided by the average number of units in inventory.

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Definitions:

Variable Overhead Efficiency Variance

The difference between actual and budgeted variable overhead costs, attributable to differences in productive efficiency.

Favorable

A term used in finance and accounting to describe a situation or variance that is better than expected or budgeted, often indicating profits or gains.

Labor Efficiency Variance

The difference between the actual labor hours used to produce a good or service and the standard labor hours expected to be used, measuring labor efficiency.

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the expected (or standard) variable overhead based on activity levels.