As a Result of Taking a Physical Inventory Count on December

question 50

Multiple Choice

As a result of taking a physical inventory count on December 31, 2014, the Mona Lisa Company inventory was determined to be $61,500. The auditors for Mona Lisa suspected an inventory shortage and used the gross profit method to estimate the ending inventory. The accounting records for the company contained the following information: $\begin{array}{ll}\$ 130,000 & \text { Inventory }(1 / 1 / 14) \\760,000 & \text { Purchases (2014) } \\1,020,000 & \text { Sales (2014) } \\60,000 & \text { Sales returns (2014) } \\25 \% \text { of sales } & \text { Gross profit ratio }\end{array}$
Using the gross profit method, what did the auditors estimate as the amount of the inventory that should have been on hand at December 31, 2014?

• A) $240,000
• B) $ 61,500
• C) $125,000
• D) $170,000

Differentiate between the treatment of costs in managerial and financial accounting.

Recognize the effect of activity levels on cost per unit and the importance of the relevant range in cost analysis.

Understand how mixed costs behave in response to changes in activity level.

Differentiate between variable and fixed costs, including their behavior within the relevant range.