Question

At the end of a period, a significant material quantity variance should be

a. closed to cost of goods sold
b. allocated among raw material, work in process, finished goods, and cost of goods sold
c. allocated among work in process, finished goods, and cost of goods sold
d. carried forward as a balance sheet account to the next period

Answer 1

A significant material quantity variance at the end of a period should be allocated among work in process, finished goods, and cost of goods sold, reflecting its impact on the varying stages of production.

Step-by-step explanation:

The question pertains to how a significant material quantity variance, found at the end of an accounting period, should be managed in the financial records. In the context of accounting for variances, such variances can indeed affect multiple aspects of inventory and the cost of goods sold (COGS).

The correct treatment for a significant material quantity variance would be to allocate it among the work in process, finished goods, and cost of goods sold. This allocation reflects the variable costs' effect on each production stage and ensures that the variance is reflected in the right period rather than carrying it over to the next period as a balance sheet account. Remember, variance analysis is essential as it helps a firm understand the factors that are contributing to the divergence between expected and actual costs.