Indicate How Each Event Affects the Horizontal Financial Statements Model

question 48

Essay

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.
Increase = I Decrease = D Not Affected = NA
Stan's Surf Shack purchased 5 surfboards for $200 each. Later it purchased 2 more surfboards for $250 each. Stan's uses the perpetual inventory system. Assume that 6 surfboards were sold during the period for $350 cash each.
How would the sale of the six surfboards affect the financial statements if Stan's Surf Shack uses the FIFO inventory cost flow method? Assume the surfboards were sold to customers for more than their original cost.

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Definitions:

Average Fixed Cost

The fixed costs of production (costs that do not change with output) divided by the quantity of output produced, which decreases as production increases.

Total Costs

The aggregate financial expense incurred in the production of goods or services, including both fixed and variable costs.

Average Fixed Costs

Production's steady costs, unchanged by the amount of production, divided across the output quantity.

Total Variable Costs

The overall expenses that vary directly with the level of production output, such as raw materials and labor.