Which of the Following Is Most Likely to Occur If

question 132

Multiple Choice

Which of the following is most likely to occur if a firm under-invests in net working capital?

• A) The firm might not have sufficient cash to pay its bill in a timely manner.
• B) The firm might not have adequate inventory to meet the needs of its customers.
• C) The firm could be losing sales because its terms of sale are too strict.
• D) All of the above.

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Definitions:

FIFO Method

An inventory valuation technique where the first items placed in inventory are the first ones sold, standing for "First In, First Out."

Equivalent Unit

A concept in cost accounting used to allocate costs to partially completed units of product, treating them as an equivalent of a proportionate number of fully completed units.

Direct Materials

Raw materials directly used in the production of a product, easily traceable to the finished product.

Weighted Average Method

An inventory valuation method that calculates the cost of goods sold and ending inventory based on the average cost of all similar items in inventory.