An Assumption About Cost Flow Is Necessary

question 38

Multiple Choice

An assumption about cost flow is necessary

• A) because it is required by income tax regulations.
• B) only when the flow of goods cannot be determined.
• C) because prices usually change,and tracking which units have been sold is difficult.
• D) even when there is no change in the purchase price of inventory.

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Definitions:

Gross Profit

The difference between sales revenue and the cost of goods sold, directly indicating the efficiency of core business activities.

Absorption Costing

A method of inventory costing that includes all manufacturing costs, both variable and fixed, in the cost of a product.

Variable Costing

An accounting method that only includes variable production costs (materials, labor, and overhead) in product cost calculations, excluding fixed costs.

Operating Income

Profit generated from a company's regular business operations, excluding expenses like taxes and interest.