Briefly Explain How a Company That Recognized Revenue Over Time

question 21

Essay

Briefly explain how a company that recognized revenue over time by estimating percentage of completion using a cost-to-cost ratio could manage earnings upward to meet a profit projection. What sort of ethical problems could result from that earnings management?

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Definitions:

November

The eleventh month of the Gregorian calendar, following October and preceding December.

Variable Overhead Efficiency Variance

The difference between the expected and actual variable overhead costs, based on the efficient use of production resources.

Variable Overhead Efficiency Variance

The difference between the budgeted and actual variable overhead costs, attributable to differences in the efficiency of utilizing resources.

Variable Overhead Rate Variance

The discrepancy between the actual incurred variable overhead and the anticipated variable overhead as per standard costing.