A Company Makes 500,000 Smart Phones in the Second Quarter

question 5

Multiple Choice

A company makes 500,000 smart phones in the second quarter.It sells 300,000 of them before the end of the second quarter,and holds the others in its warehouse.How is the second quarter GDP affected?

• A) The smart phones are included in second-quarter GDP.
• B) The smart phones that are not purchased in the second quarter are not counted in the second-quarter GDP.
• C) Since all the 500,000 smart phones will eventually be bought by consumers,they are included as consumption in the third quarter.
• D) The smart phones will be counted as a change in inventory in the second quarter,and when sold in the third quarter will raise GDP.

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Definitions:

Cost Flow Method

An accounting technique used to value inventory and determine the cost of goods sold by assuming a flow of costs.

FOB Shipping Point

A shipping term indicating that the buyer takes responsibility for goods and their transportation costs as soon as the goods leave the seller's premises.

Goods In Transit

Merchandise or stock that has been shipped by the seller but has not yet been received by the purchaser.

FIFO Method

"First In, First Out," an inventory valuation method assuming goods first purchased or produced are the first to be sold.