In practice,companies generally prorate overhead variances when it would materially affect ________ and ________.

Question

Quizplus · Accepted Answer

Prorating overhead variances is done to ensure accurate inventory valuations, which affect both the balance sheet and the income statement. Net income is also affected by inventory valuations, thus making it necessary to prorate overhead variances. Stock dividends, cash dividends, and stock option plans are not directly affected by overhead variances and are therefore not relevant factors in the decision to prorate them.

In Practice,companies Generally Prorate Overhead Variances When It Would Materially