The proration method of disposing of overhead variances assigns the variance in proportion to the sizes of the ending account balances of ________.
A) work-in-process inventory, finished goods inventory and direct materials inventory
B) work-in-process inventory, direct materials inventory and cost of goods sold
C) work-in-process inventory and direct materials inventory
D) work-in-process inventory, finished goods inventory and cost of goods sold

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 of work-in-process inventory, finished goods inventory and cost of goods sold. This method better reflects the impact of the overhead variance on the overall cost of goods sold. Choice A is incorrect because direct materials inventory is not included in the proration method. Choice B is incorrect because cost of goods sold is included, but finished goods inventory is not. Choice C is also incorrect because only work-in-process inventory and direct materials inventory are included, leaving out finished goods inventory which can also be impacted by overhead variances.

The Proration Method of Disposing of Overhead Variances Assigns the Variance