The Following Information Appears in Olsen Company's Records for the Year

question 12

Multiple Choice

The following information appears in Olsen Company's records for the year ended December 31:

On December 31, a physical inventory revealed that the ending inventory was only $210,000. Olsen's gross profit on net sales has remained constant at 30 percent in recent years. Olsen suspects that some inventory may have been pilfered by one of the company's employees. At December 31, what is the estimated cost of missing inventory?

• A) $75,000
• B) $82,500
• C) $210,000
• D) $292,500

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Definitions:

Variable Cost

Costs that vary directly with the level of production or service provision, such as materials, labor, and utilities consumed in the production process.

Total Variable Cost

The sum of all costs that vary directly with the level of production or output, including materials and labor.

Period Costs

Period costs are expenses that are not directly tied to the production process and are expensed in the period they are incurred, such as selling, general, and administrative expenses.

Financial Reporting

The communication of financial information and data about a company's operations, financial position, and cash flows to external users.