If Year-End Inventory Is Reduced from Cost to a Lower

question 76

Multiple Choice

If year-end inventory is reduced from cost to a lower net realizable value,which of the following accurately depicts the results?

• A) Year-end inventory is reduced and cost of goods sold is reduced by the same amount.
• B) Cost of goods sold is reduced and beginning inventory of the next period is reduced by the same amount.
• C) The capital account balance is increased and beginning inventory of the next period is reduced by the same amount.
• D) Cost of goods sold is increased and beginning inventory of the next period is decreased by the same amount.

Understand the concept of operating leverage and its implications for business risk and return.

Analyze cost-volume-profit relationships and their application in both manufacturing and service companies.

Calculate margin of safety and its importance in assessing business performance.

Interpret the cost-volume-profit analysis through both equation form and graphic form for decision making.

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Definitions:

Discount

A discount represents a reduction from the full price or value of goods, services, financial instruments, or the present value of future cash flows.

Safety Stock

Safety stock is additional inventory held to prevent stockouts due to uncertainties in demand or supply.

Inventory Level

The quantity of goods and materials on hand in a business' inventory at any given time.

Lead Time

The period between the initiation of a process and its completion, especially in manufacturing or project planning.