The proration method of disposing of overhead variances assigns the variance in proportion to the sizes of the ending account balances to_____.
A)WIP Inventory, Finished Goods Inventory, and Direct Materials Inventory
B)Cost of Goods Sold, WIP Inventory, and Direct Materials
C)Direct Materials Inventory and WIP Inventory
D)Cost of Goods Sold, WIP Inventory, and Finished Goods Inventory

Question

Quizplus · Accepted Answer

The proration method of disposing of overhead variances assigns the variance in proportion to the sizes of the ending account balances to Cost of Goods Sold, WIP Inventory, and Finished Goods Inventory. This is because these accounts represent the stages of production from raw materials to finished goods and eventual sale. Therefore, it is appropriate to allocate the overhead variance across these accounts according to their respective sizes. Direct materials inventory is not included in this method because it only represents the raw materials stage and not the further stages of production.

The Proration Method of Disposing of Overhead Variances Assigns the Variance