Many advocates of standard costing take the position that these costs are a proper basis for inventory costing for external reporting purposes. Accounting Research Bulletin No. 43, however, reflects the widespread view that standard costs are not acceptable unless "adjusted at reasonable intervals to reflect current conditions so that at the balance-sheet date standard costs reasonably approximate costs computed under one of the recognized bases."
Required:
(1) Discuss the conceptual merits of using standard costs as the basis for inventory costing for external reporting purposes.
(2) Prepare general journal entries for three alternative dispositions of a $1,500 unfavorable variance, when all goods manufactured during the period are included in the ending finished goods inventory. Assume that a formal standard cost system is in operation, that $500 of the variance resulted from actual costs exceeding normal (attainable) standard cost, and that $ 1,000 of the variance resulted from the difference between the theoretical (ideal) standard and a normal standard.
(3) Discuss the conceptual merits of each of the three alternative methods of disposition used in requirement 2.