When Computing the Cost Per Equivalent Unit, the FIFO Process

question 127

Multiple Choice

When computing the cost per equivalent unit, the FIFO process costing method considers

• A) current costs only.
• B) current costs plus ending work in process inventory costs.
• C) current costs less ending work in process inventory costs.
• D) current costs plus beginning work in process inventory costs.

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Definitions:

Cost of Equity

The return that shareholders require for investing in a company's equity, representing the compensation the market demands in exchange for owning the asset and bearing the risk of ownership.

Acquiring Firm

A company that gains control over another company by purchasing its shares or assets.

Real Options

Occur when managers can influence the size and risk of a project’s cash flows by taking different actions during the project’s life. They are referred to as real options because they deal with real as opposed to financial assets. They are also called managerial options because they give opportunities to managers to respond to changing market conditions. Sometimes they are called strategic options because they often deal with strategic issues. Finally, they are also called embedded options because they are a part of another project.

NPV Method

Net Present Value method, a process for evaluating and comparing investments by calculating the difference between the present value of cash inflows and outflows over a period of time.