At the end of the period:
A) All variances are closed to cost of goods sold if they are material
B) Variances are summed but they need not be recorded
C) Variances are prorated to inventory and cost of goods sold if they are material
D) Ignored if they are immaterial

Question

Quizplus · Accepted Answer

Variances are typically closed to inventory and cost of goods sold if they are material. This means that the amounts are prorated or allocated between these two accounts based on the size of each account relative to the total of the two. If the variances are immaterial, they may be ignored. Closing variances to cost of goods sold alone (option A) is not typically done as it does not accurately reflect the impact on inventory. Summing variances without recording them (option B) is not a proper accounting treatment.

At the End of the Period