The Gross Margin Method of Estimating Inventory Is Inappropriate When

question 77

Multiple Choice

The gross margin method of estimating inventory is inappropriate when:

• A) A general price decline occurred during the year.
• B) Beginning inventory is zero.
• C) Some of the inventory is destroyed.
• D) Inventory increased by a material amount during the year.
• E) Reporting in external financial statements.

---

Definitions:

Pure Competitor

A firm or business operating in a market with many sellers offering identical products, meaning it has no control over market price.

Barriers To Entry

Obstacles that prevent or hinder new competitors from easily entering an industry or area of business.

Long Run

A period of time in economics during which all factors of production and costs are variable, allowing for all possible adjustments, including changes in industry size.

Natural Monopoly

A market structure where a single firm can produce the entire market supply of a particular good or service at a lower cost than any potential competitor.