Proration of variances recognizes that underestimation or overestimation of production costs affects Cost of Goods Sold, Work-in-Process inventory and Finished Goods inventory.

Question

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Proration of variances is the process of allocating underapplied or overapplied overhead costs among Cost of Goods Sold, Work-in-Process inventory, and Finished Goods inventory, recognizing that inaccuracies in estimating production costs impact all three categories.

Proration of Variances Recognizes That Underestimation or Overestimation of Production