For Each Item Listed in 1 Through 4, Place the Letter

question 56

Essay

For each item listed in 1 through 4, place the letter of the accounting effect (a through e) in the space provided. You may use each letter more than once or not at all.
____ 1. During a period of increasing inventory and rising prices, a company decides to use FIFO instead of LIFO.
____ 2. During a period of increasing inventory and rising prices, a company decides to use averaging instead of FIFO.
____ 3. During a period of static prices, a company decides to use FIFO instead of LIFO.
____ 4. A company applies lower-of-cost-or-market for valuing ending inventory when market price is less than cost.

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Definitions:

Break-even Price

The price level at which revenues equal costs, resulting in neither profit nor loss.

Overhead Expenses

Costs not directly tied to the production of goods or services, such as rent, utilities, and administrative salaries.

Operating Profit

Earnings of a business before interest and taxes are deducted.

Rate of Mark-up

A pricing strategy calculation, expressed as a percentage, indicating how much higher a product's selling price is compared to its cost to produce or purchase.