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. Fenimores 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.

1st Paragraph is facts of the situation. 2nd paragraph is research. 3rd paragraph is advice to give.

**Can only use the FASB Codification**