The Financial Statements of Cresent Corporation for 2011 and 2012

question 16

Multiple Choice

The financial statements of Cresent Corporation for 2011 and 2012 contained the following errors:

Assuming that none of the errors were detected or corrected, by what amount will 2012 operating income be overstated or understated?

• A) $13,400 overstated
• B) $27,800 understated
• C) $35,800 understated
• D) $40,600 understated

---

Definitions:

Raw Materials

The basic materials from which products are made, used at the start of the production process.

Requisitioned

The process of formally requesting or acquiring goods or services needed for business operations or production.

Direct Labor

The wages and related benefits for employees directly involved in the production of goods or services, considered a variable cost as it typically changes with production levels.

Indirect Labor

Labor costs associated with employees that cannot be directly traced to the production of goods or services, such as maintenance and supervision.