A Company Uses Straight-Line Instead of the Units of Production

question 51

Multiple Choice

A company uses straight-line instead of the units of production method of depreciation. Assuming a tax rate of zero, which statement is true as a result of its choice of depreciation methods?

• A)Cash flows from operations will be less than under the straight-line method
• B)Cash flows from operations will be more than under the straight-line method
• C)Cash used for investing activities will be more than under the straight-line method
• D)Cash flows are the same as if the straight-line method had been used.

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Definitions:

Cost of Goods Manufactured

The sum of expenses for materials, labor, and overhead for goods finished in a given timeframe.

Period Costs

Period costs are those expenses not directly tied to the production process and include marketing, administration, and other overhead costs.

Beginning Work in Process Inventory

Beginning work in process inventory refers to the valuation of materials, labor, and overhead costs that have been partially completed but are not yet finished goods at the start of an accounting period.

Ending Work in Process Inventory

The value of goods in production but not yet completed by the end of an accounting period.