Which of the Following Statements Does Not Accurately Describe the Lower

question 135

Multiple Choice

Which of the following statements does not accurately describe the lower of cost or market (LCM or net realizable value) valuation method for inventory?

• A)The journal entry to write-down inventory decreases gross profit.
• B)The journal entry to write-down inventory decreases current assets.
• C)The journal entry to write-down inventory does not affect pretax income.
• D)The journal entry to write-down inventory increases cost of goods solD.The journal entry increases cost of goods sold and therefore decreases gross profit and pretax income.The journal entry also decreases inventory.

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Definitions:

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to units produced, based on a specific activity (e.g., machine hours or labor hours).

Manufacturing Overhead

The indirect costs related to manufacturing that are not directly tied to a specific product, such as factory rent or salary of supervisors.

Allocation Base

A measure or statistic used to distribute indirect costs to different products, services, or business units.

Labor Intensive

A process or industry that requires a large amount of labor to produce its goods or services, often resulting in higher labor costs.