Prorated Allocation of Production-Volume Variance Results in a Higher Operating

question 145

True/False

Prorated allocation of production-volume variance results in a higher operating income for current year than if the entire favorable production-volume variance were credited to Cost of Goods Sold.

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Definitions:

Weighted-Average Method

A method of inventory valuation that assigns a cost to inventory on the basis of the average cost of all similar items in the inventory.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a specific product and included in its cost.

Conversion Costs

Expenditures associated with transforming raw materials into final products, often comprising direct labor costs and indirect manufacturing expenses.

Equivalent Units

A concept used in process costing that converts partially completed units into an equivalent number of fully completed units to accurately measure inventory and cost of goods sold.