A Friend of Your Works for a Local Electric Products

question 75

Essay

A friend of your works for a local electric products distributor and has been put in charge of the inventory count at year end. He has been told that he needs to make sure that he includes all of the inventory the company owns in his count, even those items that are not physically on the premises. He is confused by this. He knows that you are studying accounting and business and asks for your help. What explanation do you provide?

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Definitions:

High-low Method

An accounting technique used to estimate the variable and fixed components of a company's costs, based on the highest and lowest levels of activity.

Fixed Costs

Expenses that do not change in total regardless of the level of production or sales activity.

Variable Costs

Expenses that vary directly with changes in production or sales volumes, such as raw materials and direct labor costs.

Production Increases

A rise in the amount of goods and services produced over a given period of time by a business or economy.