Question

If inventories in a business using a standard cost system are insignificant, the firm would be justified (in a practical sense) by disposing of variances each year:

A. As an adjustment to the finished goods inventory only.
B. As an adjustment to cost of goods sold only.
C. As adjustments to both inventory accounts and the cost of goods sold for the period.
D. As a special item (gain or loss) on the income statement for the period.
E. As an adjustment to the work-in-process (WIP) inventory only.

Answer 1

If inventories in a business using a standard cost system are insignificant, the firm would be justified in disposing of variances each year as adjustments to both inventory accounts and the cost of goods sold for the period.

Step-by-step explanation:

If inventories in a business using a standard cost system are insignificant, the firm would be justified in disposing of variances each year as adjustments to both inventory accounts and the cost of goods sold for the period. This is because variances represent deviations from the standard cost and can impact the accurate valuation of inventory and cost of goods sold.