Match Each Situation to Its Impact (A-C) on the Current

question 139

Multiple Choice

Match each situation to its impact (a-c) on the current year's net income.
-Purchased merchandise was shipped FOB shipping point on the last day of the year. The cost of the merchandise was not included in ending inventory.

• A)Net income for the current year will be overstated.
• B)Net income for the current year will be understated.
• C)There will be no error effect on net income.

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Definitions:

Variable Overhead Rate

The ratio of variable overhead costs to an activity base, used to allocate variable overhead costs to products or services.

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process or providing services.

Ending Cash Balance

The amount of cash a company has at the end of a given financial period, reflecting all cash inflows and outflows.

Budgeted Cash Receipts

Projected cash inflows for a future period, based on sales forecasts and other receipts.