After Evaluating the Lower of Cost and Net Realizable Value

question 147

Multiple Choice

After evaluating the lower of cost and net realizable value of inventory,the accountant prepares a year-end adjustment.That adjustment would:

• A)Decrease the company's cost of goods sold.
• B)Reduce the company's stockholders' equity.
• C)Increase the company's inventory.

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Definitions:

Cost Per Unit

The calculation of the total cost of producing a product or providing a service divided by the number of units produced or serviced.

Finished Goods

Products that have completed the manufacturing process but have not yet been sold or distributed to end users.

Variable Costing

A costing method that includes only variable production costs in the cost of goods sold and reports fixed overhead separately.

Absorption Costing

A method of product costing that includes all manufacturing costs, both variable and fixed, in the cost of a product.