As cost accountant, you have followed the practice of allocating overhead variances between Work in Process, Finished Goods, and Cost of Goods Sold. The controller has questioned this practice.

She points out that for the year just ended the allocation of a large amount of unfavorable variances had led to an inventory cost that had to be "written down" because generally accepted accounting principles require that in published reports inventory should be valued at the lower of cost or market. The allocation of unfavorable variances led to an inventory cost that was greater than market.

What is your reaction to this problem?

LO.1