The Material Sale of Inventory Items by a Parent Company

question 20

Multiple Choice

The material sale of inventory items by a parent company to an affiliated company

• A)enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining.
• B)affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.
• C)does not result in consolidated income until the merchandise is sold to outside parties.
• D)does not require a working paper adjustment if the merchandise was transferred at cost.

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Definitions:

Total Variable Costs

The total of all costs that vary with the level of output, including costs for raw materials, labor, and energy, in the production process.

Average Fixed Costs

Fixed costs divided by the quantity of output produced, indicating the fixed cost per unit of output.

Constant Returns to Scale

The situation in which a proportional increase in all inputs leads to an equal proportional increase in output.

Wage Rate

The standard amount of compensation paid to an employee per unit of time worked, typically expressed on an hourly or monthly basis.