A Company Has Been Using Straight-Line Depreciation Over the Last

question 18

Multiple Choice

A company has been using straight-line depreciation over the last several years, which has amounted to a total of $20,000 depreciation before tax for those past years.This year, it decided to change to units of production, which would have caused $30,000 of depreciation to be recognized in those past years, before tax.The tax rate has always been 40%.This year's depreciation under both methods is: Straight-Line = $5,000
Units of Production = $6,000
The cumulative effect account resulting from this change will decrease net income by:

• A)$10,000.
• B)$6,000.
• C)$6,600.
• D)$4,000.

---

Definitions:

Standard Cost System

A cost accounting system that assigns fixed costs for materials, labor, and overhead to products, allowing for variance analysis.

Actual Results

The actual outcomes or figures achieved, compared against forecasts or budgeted amounts.

Raw Materials Price Variance

The difference between the actual cost and the standard cost of raw materials used in production, reflecting price fluctuations.

Standard Cost System

An accounting system that uses predetermined costs for products or services to compare against actual costs for performance evaluation.