Badger Meter of Milwaukee, Wisconsin, designs and manufactures water meters, gasoline meters, and other metering systems to measure and report the flow of liquid through various lines. The company has three manufacturing plants:

one in Milwaukee, Wisconsin, one in Lucerne, France, and one in Bustof, Poland. The plant in Milwaukee has been recently modernized and is the most modern of the three. The company uses standard costs to value all work-in-process and finished goods inventory. Because management wants to compare plant productivity across all three of its plants, it utilizes the standard cost system developed for the Milwaukee plant for use in all three plants. This allows them to analyze variances at the other plants to determine their relative efficiency. Overhead is applied to products based on the annual depreciation expense charged to each production area. This method is used because factory labor has become less of a factor in the manufacturing process in the United States, although it is not so true for the plant in Poland.

Required

a. Briefly discuss the validity of using standard cost systems as a basis for valuing inventory.

b. How are variances treated in the inventory valuation process?

c. Identify the procedures the auditor would utilize to audit the standard cost system and the inventory valuation at the Milwaukee plant.

d. Discuss how the information gathered in Milwaukee would be applicable to the audits of the inventory at the other two locations.