A Company Fails to Record One Storeroom Full of Inventory

question 174

Multiple Choice

A company fails to record one storeroom full of inventory in its year-end inventory records.As a result, this will cause:

• A)an overstatement of inventory on the year-end balance sheet.
• B)an understatement of gross profit in the following year.
• C)an overstatement of retained earnings at the end of the year.
• D)an overstatement of cost of goods sold for the current year.

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Definitions:

Outsourcing Production

The business practice of having goods or services produced by external organizations, typically to reduce costs.

Absorption Costing

An accounting methodology that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.

Required Rate of Return

The minimum expected return on an investment necessary for it to be considered a worthwhile endeavor.

Economic Value

The value of an asset derived from its ability to generate income, benefits, or utility for its owner.