Robert Smith Corporation, which manufactures aircraft components, recently created an internal audit position based on a recommendation from their independent auditor. While the individual who filled the position is an experienced internal auditor, she has worked primarily in the service sector and is therefore unfamiliar with some of the GAAP for manufacturers. You are the assistant controller of Robert Smith and have been asked to provide a response to two questions that have been raised by the internal auditor, Jane Doe.

1. First, she is trying to understand how the allocation rate for fixed overhead was determined. She recalls from her cost accounting class (many years ago) that fixed overhead should be divided by production to determine an allocation rate, but noticed that Robert Smith has used the same fixed overhead allocation rate for the past three years.
2. In addition, over the past year, demand for Robert Smiths products has experienced an abnormal decline. This led to a temporary decrease in production at the Robert Smith facility while fixed overhead costs have remained unchanged. She wants to know whether fixed overhead allocated to each unit of inventory should be increased as a result of this decrease in production.

Use the FASB Codification to research Ms. Does questions. Prepare a memo to Ms. Doe summarizing your responses. Identify the Codification reference(s) that you used to support your findings.