Ronn Industries Ronn Industries Reported Net Income of $95,000 for 2012. Early

question 28

Multiple Choice

Ronn Industries
Ronn Industries reported net income of $95,000 for 2012. Early in 2013, Ronn discovered that its 2012 ending inventory was overstated by $5,000.
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Refer to the information provided for Ronn Industries. Determine the financial statement effects of the inventory error for 2013.

• A) Expenses will be understated and net income will be overstated.
• B) Expenses will be overstated and net income will be understated.
• C) Both expenses and net income will be overstated.
• D) Both expenses and net income will be understated.

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Definitions:

Direct Labor Variances

The difference between the actual and standard labor costs incurred by a business during a specific period.

Direct Labor Costs

The wages and benefits paid for labor that is directly involved in the production of goods.

Property, Plant, and Equipment

Long-term tangible assets that a company uses in its operations and that are expected to provide benefits for more than one year.

Standard Cost

A predetermined cost of manufacturing a product or providing a service, under normal conditions, which serves as a benchmark for measuring performance.