If a Company Understates Its Ending Inventory Balance for 2016

question 18

Short Answer

If a company understates its ending inventory balance for 2016 by $15,500, what are the effects on its net income for 2017 and 2016? ​ $\begin{array}{cc}\text { Effect on } 2017 \text { Net Income } & \text { Effect on } 2016 \text { Net Income } \\\hline \text { a. Overstated by } \$ 15,500 & \text { Understated by } \$ 15,500 \\\text { b. Understated by } \$ 15,500 & \text { Overstated by } \$ 15,500 \\\text { c. Understated by } \$ 15,500 & \text { No effect } \\\text { d. Overstated by } \$ 15,500 & \text { No effect }\end{array}$

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Definitions:

TFC

Total Fixed Costs, referring to the sum of all costs that remain constant regardless of the level of output or production.

TVC

Total Variable Cost, which refers to all costs that vary with the level of output in the production process.

Marginal Cost

The increase in total cost that arises from producing one additional unit of a good or service.

Drone

A remotely operated or autonomous flying machine, known as an unmanned aerial vehicle (UAV), which follows flight paths programmed through software.