New FASB Statement No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities.

The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.

FASB concluded that clarifying the existing requirements in ARB 43 by adopting language similar to that used in International Accounting Standard 2 is consistent with its goals of improving financial reporting in the U.S. and promoting convergence of accounting standards internationally.

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