When a Firm Produces Consumer Goods and Adds Some to Inventory

question 1

Multiple Choice

When a firm produces consumer goods and adds some to inventory rather than selling it, how is the increase in inventory counted in GDP?

• A)It is not counted in the current quarter GDP.
• B)It is counted in the current quarter GDP as investment.
• C)It is counted in the current quarter GDP as consumption.
• D)It is counted in the current quarter GDP as a statistical discrepancy.

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Definitions:

Variable Overhead

Costs of indirect production materials or services that fluctuate with the level of production activity, such as utilities for a factory.

Direct Labor-hours

The amount of labor time spent by workers directly involved in the manufacturing process, restated as "The quantity of labor time directly utilized in producing goods."

Variable Overhead Efficiency Variance

The difference between the actual variable overhead based on the standard cost and the variable overhead applied to production based on actual activity levels.

Direct Labor-hours

The total hours of labor directly involved in the production of goods or services.