If the Inventory at the End of the Current Year

question 78

Multiple Choice

If the inventory at the end of the current year is understated and the error is never caught,the effect is to:

• A)Understate income this year and overstate income next year.
• B)Overstate income this year and understate income next year.
• C)Understate income this year with no effect on income next year.
• D)Overstate the cost of goods sold,but have no effect on net income.

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Definitions:

Fixed Costs

Costs that remain consistent regardless of the amount of goods produced or the level of business operations, including expenses like rent, salaries, and insurance fees.

Variable Costs

Expenses that change in proportion to the level of production or sales volume.

Fixed Costs

Fixed expenses, including rent, salaries, and insurance, that are unaffected by variations in production or sales levels.

Units Produced

A measure of output representing the total number of units of a product made by a company or an industry during a given period.