State the Effects of Inventory Errors on Cost of Goods

question 42

Essay

State the effects of inventory errors on cost of goods sold and net income for periods 1 and 2. The response should be overstated or understated.
Period 1 Ending Merchandise Inventory is overstated

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Definitions:

Spending Variance

The difference between the actual amount spent on a budget item and the amount that was expected or budgeted.

Indirect Labor

The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.

Direct Labor-Hours

The total hours worked by employees directly involved in the production process.

Spending Variance

This refers to the difference between the budgeted amount of spending and the actual amount spent.