Question

When inventory valuation is based on an appropriately established and effective standard cost system Multiple Choice O cumulative variances are recognized O a significant unfavorable net vartance may be reported as an expense of the current period. O an insignificant favorable net vartance may be reported as an expense of the current period. O the explanatory notes to the financial statements will explain the disposition of the net varlance

Answer 1

In an appropriately established and effective standard cost system, a significant unfavorable net variance may be reported as an expense of the current period.

Step-by-step explanation:

Inventory valuation is the process of assigning a monetary value to a company's stock of goods. Various methods, such as FIFO (First-In-First-Out), LIFO (Last-In-First-Out), and weighted average cost, are used to determine the value of inventory. This valuation is crucial for financial reporting, impacting a company's balance sheet and income statement.

Accurate inventory valuation ensures a true representation of assets, cost of goods sold, and, consequently, profitability, providing insights for strategic decision-making and financial analysis. When inventory valuation is based on an appropriately established and effective standard cost system, a significant unfavorable net variance may be reported as an expense of the current period.