Memorex Disks Sells Computer Disk Drives with Right-Of-Return Privileges

question 14

Multiple Choice

Memorex Disks sells computer disk drives with right-of-return privileges. Returns are material and reasonably predictable. Memorex should:

• A) Not record sales until the right to return has expired.
• B) Record an allowance for sales returns in the year of the sale.
• C) Debit sales returns in the period of the return.
• D) Debit sales in the period of the return.

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Definitions:

Increasing Returns to Scale

A situation in which a proportionate increase in all inputs leads to a greater proportional increase in output, indicating improved production efficiency.

Diminishing Marginal Returns

A principle stating that if one factor of production is increased while others remain constant, the overall returns will gradually decrease after a certain point.

Long-Run Average Cost Curves

A graphical representation showing the average cost per unit of output over a long period, where all inputs, including capital, are variable.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, leading to a reduction in average costs per unit as output increases.