Some accountants would argue that any variances from standard costs, when such standards are current, should be written off to Cost of Goods Sold (or other income statement account). The principal conceptual rationale for this treatment is:
A) This is the treatment required currently under generally accepted accounting principles in the U.S.
B) To allocate such variances (as the alternative treatment) implies that asset values on the balance sheet (i.e., inventories) contain the cost of inefficiencies.
C) The negligible effect this treatment has on total Cost of Goods Sold (or the Income Statement) for the period.
D) The increased information and insight this procedure provides to management, for better managing operations.
E) Simplicity of application—this is an expedient method.

Question

Quizplus · Accepted Answer

Writing off variances to Cost of Goods Sold implies that inventories (an asset on the balance sheet) contain the cost of inefficiencies. By allocating variances, we recognize that such variances are part of the cost of production and should be reflected in the value of inventories. This treatment provides a more accurate representation of the cost of goods sold and ending inventory.

Some Accountants Would Argue That Any Variances from Standard Costs