When auditing manufacturing overhead costs assigned to inventory, auditors should keep in mind that
A) GAAP has strict procedures that must be followed when assigning overhead to work-in-process inventory.
B) overhead costs must be allocated to raw materials, work-in-process, and finished goods inventory.
C) management typically allocates overhead using total direct labor dollars as the basis for the allocation.
D) determining the reasonableness of the allocation method is relatively simple for work-in-process inventory.

Question

Quizplus · Accepted Answer

Management often uses total direct labor dollars as a basis for allocating overhead costs to products. This method is common because it provides a straightforward way to distribute overhead costs based on the direct labor involved in the production of each item.

When Auditing Manufacturing Overhead Costs Assigned to Inventory, Auditors Should