Sandra Company Had Two Hundred Units of Inventory on Hand

question 102

Multiple Choice

Sandra Company had two hundred units of inventory on hand at the end of the year. These were recorded at a cost of $12 each using the last-in, first-out (LIFO) method. The current replacement cost is $10 per unit. The selling price charged by Sandra Company for each finished product is $15. As a result of recording the adjusting entry as per the lower-of-cost-or-market rule, the gross profit will:

• A)increase by $2,000.
• B)decrease by $2,000.
• C)increase by $400.
• D)decrease by $400.

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Definitions:

Hard Rationing

A situation in corporate finance where there is a strict limit on the amount of new equity a company can issue.

Operating Cash Flow

Operating cash flow refers to the cash generated by a company's normal business operations, indicating whether a company is able to generate sufficient positive cash flow to maintain and grow its operations.

Variable Costs

Expenses that change in proportion to the amount of goods produced or the extent of services rendered.

Sales Quantity

The total number of units of a product sold in a particular period.