Selection of an Inventory Cost Formula by Management Should Be

question 55

Multiple Choice

Selection of an inventory cost formula by management should be influenced most by the:

• A) fiscal year end.
• B) physical flow of goods.
• C) goal of reporting inventory at its lowest cost.
• D) income tax effects.

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Definitions:

Fixed Cost

Costs that do not vary with the volume of output or sales, such as rent, salaries, and insurance premiums.

Target Cash Balance

The optimal amount of cash that a company aims to maintain to handle its operational and transactional needs.

Carrying Costs

The total expenses associated with holding or maintaining an asset over time, including storage, insurance, and taxes.

Holding Cash

Maintaining a portion of one's assets in liquid cash form to meet immediate needs or prepare for future expenses or investment opportunities.