If a Firm Produces 100 Units of a Particular Good

question 84

Multiple Choice

If a firm produces 100 units of a particular good during a year and,of these,only 90 units are sold during the same year,then the 10 unsold units are treated as the firm's inventory investment expenditure for the year,as if the firm had bought the items for its stock of inventories from itself.For the economy as a whole,this accounting practice ensures that

• A) production equals expenditure each year.
• B) inventory investment is always positive each year.
• C) capital consumption allowances are zero each year.
• D) saving and investment are equal each year.
• E) net private-sector investment is zero each year.

---

Definitions:

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products or job orders, calculated before the period begins based on estimated costs and activity levels.

Direct Labor-hour

The sum of hours clocked by workers directly engaged in the production process.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate estimated overhead costs to specific activities based on a chosen base.

Predetermined Manufacturing Overhead

An estimated overhead rate calculated before the accounting period begins, used to allocate manufacturing overhead costs to products.