Situation: Fenimore Manufacturing Company uses the average cost method. It has followed a policy of expensing all its manufacturing cost variances. It is considering a change in its policy that will involve allocating them between the cost of goods sold and inventory. Fenimore’s president has asked you which of these alternative policies is consistent with GAAP.
Directions: Research the related generally accepted accounting principles and prepare a short memo to the president. Cite your references and applicable paragraph numbers.