Flatt Ltd Is a Wholly-Owned Subsidiary of Franco Ltd

question 31

Multiple Choice

Flatt Ltd. is a wholly-owned subsidiary of Franco Ltd. For consolidation purposes, how does the treatment of unrealized profits on upstream sales differ from the treatment of unrealized profits on downstream sales?

• A)Unrealized profits must be eliminated on upstream sales, but not on downstream sales.
• B)Unrealized profits must be eliminated on downstream sales, but not on upstream sales.
• C)Unrealized profits must be eliminated for both upstream and downstream sales.
• D)Unrealized profits are not eliminated on either upstream or downstream sales.

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Definitions:

Activity-Based Costing

A pricing strategy that pinpoints various tasks within a company and allocates the expenses of each task to every product and service based on their specific usage.

Overhead Rate

A calculation used to allocate indirect costs to produced goods or services, often based on labor hours, machine hours, or direct labor costs.

Cost of Services Account

An accounting category that includes all direct costs associated with the delivery of services, such as labor and materials.

Job Costs

The total expenses associated with a specific job or project, including labor, materials, and overhead, used for pricing and profitability analysis.