Inventory at the End of the Current Year Is Overstated

question 55

Multiple Choice

Inventory at the end of the current year is overstated by $20,000. What effect will this error have on the following year's net income?

• A)Net income will be overstated $20,000.
• B)Net income will be understated $20,000.
• C)Net income will be correctly stated.
• D)Net income will be understated $40,000.

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Definitions:

Activity-Based Costing

A costing method that assigns overhead and indirect costs to related products and services based on the activities they require.

Material Handling

The movement, protection, storage, and control of materials and products throughout manufacturing, warehousing, distribution, consumption, and disposal.

Activity Cost Pool

A “bucket” in which costs are accumulated that relate to a single activity measure in an activity-based costing system.

Measure Of Activity

A metric used to gauge the level of a specific operation or process over a given time period.