The Level of Inventory of a Manufactured Product Has Increased

question 129

Multiple Choice

The level of inventory of a manufactured product has increased by 7,000 units during a period. The following data are also available: What would be the effect on income from operations if absorption costing is used rather than variable costing?

• A) $42,000 decrease
• B) $42,000 increase
• C) $52,500 increase
• D) $52,500 decrease

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Definitions:

Expected Residual Value

The anticipated value of an asset at the end of its useful life, important in calculating depreciation and lease payments.

Lease Rate

The amount of money paid over a specified time period for the use of an asset or property, typically expressed as an annual amount or percentage.

Operating Leases

Provides for both financing and maintenance. Generally, the operating lease contract is written for a period considerably shorter than the expected life of the leased equipment and contains a cancellation clause; sometimes called a service lease.

Maintenance

Maintenance involves the actions taken to keep equipment, buildings, or software operating efficiently or to repair it to optimal functioning state.