A. The selling price is mostly determined by the manufacturing costs and other aspects like market price level, service costs allocation, etc. The variances are usually not significant aspects in the process of selling price determination.
B. Depending on the significance of a variance, it is either written off to the finished goods account or allocated to the inventory accounts and finished goods on pro-rata basis. Variances are not used to properly value inventory at year end.
C. The purpose of identifying manufacturing variances and assigning their responsibility to a person/department is to use the knowledge about the variances to promote learning and continuous improvement. One of the main purposes for responsibility centers and responsibility accounting is to enable evaluation of subunits' performance and contribute to measuring the performance of the subunits' managers. This provides motivation for managers of the subunits. By knowing what they are responsible for and controlling those items, managers should be more motivated than if they were evaluated on something outside of their control.
D. Reports of variances from the budget should be used to direct attention to problems, and the emphasis should be on information, not on blame.
