FASB Issues Amended Standard On Inventory

ByJohn S. McClenahen As part of a continuing effort to come up with a single set of international accounting rules, the U.S. Financial Accounting Standards Board (FASB) has issued Statement 151 on inventory costs. The change makes U.S. Generally Accepted Accounting Principles and International Accounting Standards consistent in their treatment of inventory costs. Effective for costs incurred during fiscal years beginning after June 15, 2005, the rule says that "abnormal amounts of idle facility expense, freight, handling costs and wasted materials" are to be treated as current-period charges. The rule also requires the allocation of fixed production overhead to inventory based on the normal capacity of production facilities.