For financial reporting, SFAS 151 requires:
A) the allocation of fixed manufacturing overhead to production must be based on theoretical capacity of the facilities
B) the allocation of fixed manufacturing overhead to production must be based on normal capacity of the facilities
C) the allocation of fixed manufacturing overhead to production must be based on practical capacity of the facilities
D) the allocation of fixed manufacturing overhead to production must be based on the average of the capacity of the facilities over the three most recent period

Question

Quizplus · Accepted Answer

SFAS 151 requires the allocation of fixed manufacturing overhead to production based on normal capacity of the facilities. Normal capacity is defined as the average production capacity over a longer period of time, such as several years, and should exclude abnormal or inefficient periods. This basis of allocation is considered to be the most appropriate as it reflects the steady state of operations and provides a more accurate representation of the true costs of production.

For Financial Reporting, SFAS 151 Requires