Financial Statement Information Uses Average Costs (Variable Plus Average Fixed

question 58

Essay

Financial statement information uses average costs (variable plus average fixed overhead)to calculate cost of goods sold and to value inventory. Are these average costs useful in making nonroutine operating decisions? Explain.

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Definitions:

De Facto Corporation

A business entity that operates as if it were a corporation although it has not completed the legal formalities for incorporation, and may be treated as a corporation by courts.

De Jure Corporation

A corporation that has fully complied with all legal requirements for its establishment, and thus has legal recognition.

Corporation by Estoppel

A legal doctrine that prevents a party from denying the corporation's existence if they have dealt with it as if it were a legal corporation.

Subchapter S Corporation

A form of corporation in the United States that is taxed under Subchapter S of the Internal Revenue Code, allowing profits to be taxed at the shareholder level rather than at the corporate level.