To help you become familiar with the accounting standards, this case is designed to take you to the FASB’s Web site and have you access various publications. Access the FASB’s Web site at www.fasb.org. Click on “Pronouncements & EITF Abstracts.” In this chapter, we discussed issues relating to inventory. For this case, we will use Statement of Financial Accounting Standards No. 151, “Inventory Costs.” Open FASB Statement No. 151.
1. Read the summary at the beginning of the statement. Previous accounting standards required “idle facility expense, excess spoilage, double freight” etc., to be expensed in the current period if such costs were considered abnormal. How are these costs to be handled with this new accounting standard?
2. In the second paragraph of the summary, the FASB states the primary reason for addressing these inventory costing issues. What is the reason stated?