Gordon Company Produces a Single Product That Sells for $10

question 190

Multiple Choice

Gordon Company produces a single product that sells for $10 per unit. Last year there were no beginning inventories, 100,000 units were produced, and 80,000 units were sold. The company has the following cost structure:
-The carrying value on the balance sheet of the ending finished goods inventory under absorption costing would be:

• A)$80,000
• B)$104,000
• C)$110,000
• D)$124,000

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Definitions:

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity which constitutes how a company finances its overall operations and growth.

Indifference EBIT

Indifference EBIT (Earnings Before Interest and Taxes) is the level of EBIT where a company is indifferent between different financial options or structures, as each would result in the same earnings.

Interest

The cost of borrowing money, typically expressed as an annual percentage of the principal.

Unlevered Cost of Capital

The cost of capital for a company that has no debt, reflecting the returns required by equity owners alone.