XYZ Company uses standard costs for allocating costs to work-in-process and finished goods inventory.What internal control is required with respect to these costs to ensure proper valuation of inventory?
A)Procedures must be designed to keep the standards updated for changes in production processes and costs.
B)Computer software should be used to make sure that the standard costs are properly updated into the inventory item master file.
C)Input edit routines should be used to help detect input data entry errors for the entry of the standard costs.
D)Standard costs should be used to provide a value for inventory every month by calculating cost times quantity on hand.

Question

Quizplus · Accepted Answer

Procedures must be designed to keep the standards updated for changes in production processes and costs. This internal control is necessary to ensure that the standard costs used for allocating costs to inventory are accurate and reflective of the actual production processes and costs. Without regular updates, the standard costs may become outdated and result in inaccurate inventory valuations. The other options may be helpful for ensuring accurate data entry or calculation of standard costs, but they do not address the need for regular updates and maintenance of the standard costs themselves.

XYZ Company Uses Standard Costs for Allocating Costs to Work-In-Process