Which Method of Accounting for Inflation Must Be Used Under

question 11

Multiple Choice

Which method of accounting for inflation must be used under U.S.GAAP?

• A)Current Replacement Cost method
• B)General Purchasing Power method
• C)Both Current Replacement Cost and General Purchasing Power methods must be used
• D)Neither method must be used since inflation accounting is not required under U.S.GAAP.

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Definitions:

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, or insurance.

Materials Markup

The extra percentage added to the cost price of goods to cover overhead and profit when selling goods.

Labor Rate

The cost paid to labor per unit of time, often referred to as wage rate or hourly rate.