If the Price Index Was 90 in Year 1, 100

question 49

Multiple Choice

If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced

• A)10 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3.
• B)10 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.
• C)11.1 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3.
• D)11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

Identify the components and costs that are included and excluded in the Merchandise Inventory account.

Calculate and interpret inventory turnover ratios and days' sales in inventory.

Recognize the effects of inventory misstatements on the balance sheet, income statement, and taxation.

Calculate inventory turnover and understand its implications on business operations.

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Definitions:

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that do not vary with production volume, such as rent and salaries of supervisors.

Direct Labor Variances

The difference between the actual labor costs incurred and the standard labor costs for the actual production level.

Direct Labor

Refers to the wages paid to workers who are directly involved in the production of goods or services.

Fixed Overhead Budget Variance

The difference between the actual fixed overhead costs incurred and the budgeted or expected costs, indicating overhead management effectiveness.