A basic belief of variable costing is that period costs should be currently expensed. What is the basic rationale behind this procedure? a. Period costs are uncontrollable and should not be charged to a specific product. b. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific products would outweigh the benefits. c. Allocation of period costs is arbitrary at best and could lead in erroneous decisions by management. d. Period costs will occur whether or not production occurs and so it is improper to allocate these costs to production and defer a current cost of doing business.

A basic belief of variable costing is that period costs should be currently expensed. What is the basic rationale behind this procedure? a. Period costs are uncontrollable and should not be charged to a specific product. b. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific products would outweigh the benefits. c. Allocation of period costs is arbitrary at best and could lead in erroneous decisions by management. d. Period costs will occur whether or not production occurs and so it is improper to allocate these costs to production and defer a current cost of doing business.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter7: Inventories: Cost Measurement And Flow Assumptions

Section: Chapter Questions

Problem 24GI: List the acceptable cost flow assumptions under IFRS. Be sure to explain the reasoning as to why...

See similar textbooks

Similar questions

A basic tenet of variable costing is that period costs should be currently expensed. What is the rationale behind this procedure? Period costs are generally immaterial in amount and the cost of assigning the amounts to specific products would outweigh the benefits. Allocation of period costs is arbitrary at best and could lead to erroneous decision by management. Period costs are uncontrollable and should not be charged to a specific product. Because period costs will occur whether production occurs, it is improper to allocate these costs to production and defer a current cost of doing business.
Which of the following statements is false? (You may select more than one answer.)a. Under some circumstances, a sunk cost may be a relevant cost.b. Future costs that do not differ between alternatives are irrelevant.c. The same cost may be relevant or irrelevant depending on the decision context.d. Only variable costs are relevant costs. Fixed costs cannot be relevant costs.
Which of the following statements are false? SELECT ALL THAT APPLY a. One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is. b. A new fixed cost that must be paid if a special offer is accepted is not relevant in making the decision. c. A cost that will be incurred regardless of which course of action a manager takes is relevant to the manager's decision. d. Your Company is considering replacing Machine X. The original cost of Machine X is not relevant to this decision.
Demonstrate why expressing fixed costs on a per unit of activity basis is misleading and may result in faulty decisions.
Wrong allocation of common costs lead to A. Inaccurate estimation of cost of products or services B. Under utilization of capacity C. Lower profit margin D. All of the above are correct
What is the basic difference between variable costing and absorption costing?a. Variable costing always produces less taxable income that absorption costing.b. Variable costing recognizes fixed costs as a period cost and absorption costingrecognizes fixed costs as a product cost.c. Variable costing cannot use standards, whereas standards may be used with absorptioncosting.d. Variable costing may be used only in situations where production is essentiallyhomogenous, but absorption costing may be used under any manufacturing condition.
What is the rationale behind treating period costs as current expenses? a. Period costs are uncontrollable b. Period costs are immaterial c. Allocation of period costs is arbitrary at best and could lead to erroneous decisions d. Period costs will occur whether or not production occurs and so it is improper to allocate these costs to production and defer a current cost of doing business
List the acceptable cost flow assumptions under IFRS. Be sure to explain the reasoning as to why IFRS find certain cost flow assumptions unacceptable.
In a drop or continue decision, only the variable costs identified with a product are relevant in a decision-making. true or false?
A cost that cannot be changed because it arises from a past decision and is irrelevant to future decisions is a. An uncontrollable cost. d. An opportunity cost. b. An out-of-pocket cost. e. An incremental cost. c. A sunk cost.
1. Which of the following is a disadvantage of the Variable Costing method? A. The data available does not easily relate to CVP[Cost - volume - profit] applications. B. The data is not applicable to short-term decision-making situations. C. Much time and effort must be expended to allocate fixed costs to various segments. D. It cannot be used for external reporting purposes. E. All of the above are disadvantages of variable costing.
“In decision making, full (absorption) costing approach has become entirely useless as it leads to wrong decisions”. Provide examples and evaluate the statement.