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 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.
MUST use FASB Accounting Standard of Codification and cite what code you used to explain in memo.
First paragraph would explain just the facts that we have and know about the situation. DO NOT include any findings or research in this paragraph.
Second paragraph explains your findings. This is where you would reference what code you’re using and explain it in your own words. It can be as many codes as you need to explain your findings. For example, one or two codes, as long as it makes sense in explaining to the president in the memo.
Paragraph 3 needs to include your recommendation or advice to president. It needs to be clear and straightforward.
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