1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
erma4kov [3.2K]
3 years ago
8

In times of rising prices, inventory profits (or phantom profits) are said to occur under the FIFO cost flow assumption. This oc

curs because under FIFO, the release of older, lower costs to the income statement results in higher profits than if current costs were to be recognized. This creates a problem for the reporting company because:?
Business
1 answer:
mart [117]3 years ago
4 0

Answer:

The answer is overstate profits

Explanation:

FIFO is First in First out. It assumrs that the oldest goods purchased or manufactured are sold first and the newest goods purchased or manufactured remain in ending inventory. With this, the cost of sales shows the cost of sales shows the cost of goods in the beginning inventory and the value of ending inventory reflects the cost of goods purchased more recently.

Therefore, in the period of rising inventory ending inventory are higher, cost of sales are lower and this makes profit to be higher or being overstated

You might be interested in
An asset falling under the MACRS five-year class was purchased three years ago for $200,000 (its original depreciation basis). C
Nitella [24]

Answer:

(a) The cash flows is $59,040.

(b) The cash flows is $71,040.

Explanation:

From the  Modified Accelerated Cost Recovery System (MACRS) Tables, the depreciation rates for the first 3 years for an asset falling under the MACRS five-year class are 20%, 32% and 19.2%. Therefore, we have:

Accumulated depreciation rate = 20% + 32% + 19.2% = 71.20%

Accumulated depreciation = Cost of the asset * Accumulated depreciation rate =  $200,000 * 71.20% = $142,400

Net book value of the asset = Cost of the asset - Accumulated depreciation = $200,000 - $142,400 = $57,600

We can now proceed as follows:

(a) Calculate the cash flows if the asset is sold now at $60,000

Capital gains = Sales proceeds - Net book value = $60,000 - $57,600 = $2,400

Capital gains tax = Capital gains * Tax rate = $2,400 * 40% = $960

Net sales proceeds = Sales proceeds - Capital gains tax = $60,000 - $960 = $59,040

Therefore, the cash flows is $59,040 net sales proceeds.

(b) Calculate the cash flows if the asset is sold now at $80,000

Capital gains = Sales proceeds - Net book value = $80,000 - $57,600 = $22,400

Capital gains tax = Capital gains * Tax rate = $22,400 * 40% = $8,960

Net sales proceeds = Sales proceeds - Capital gains tax = $80,000 - $8,960 = $71,040

Therefore, the cash flows is $71,040 net sales proceeds.

3 0
3 years ago
For each of the following service departments, select the activity base listed that is most appropriate for charging service exp
garik1379 [7]

Answer:

a. Accounts Receivable - Number of sales invoices

b. Central Purchasing - Number of purchase requisitions

c. Computer Support - Number of computers

d. Conferences - Number of conference attendees

e. Employee Travel - Number of travel claims

f. Payroll Accounting - Number of payroll checks

g. Telecommunications - Number of cell phone minutes used

h. Training - Number of employees trained.

Explanation:

a. Accounts Receivable - Number of sales invoices

Accounts receivable occur due to credit sales, and therefore for the Activity base of this we use number of sales invoices.

b. Central Purchasing - Number of purchase requisitions

Purchasing is based on number of requisitions issued for purchase, as before purchasing any material requisitions are raised.

c. Computer Support - Number of computers

Computer support services are based on number of computers through which the service is provided and to be allocated between them.

d. Conferences - Number of conference attendees

The expense of conference shall be divided based on number of attendees for the conference as this is based on the number of personnel attending the conference.

e. Employee Travel - Number of travel claims

Employee travel is such expense that is based on number of employees claiming the travel as this is only to be allocated between employees claiming the travel expense and not all the employees.

g. Telecommunications - Number of cell phone minutes used

The telecommunication expense shall be based on the activity of cell phone minutes usage, as this is the most appropriate activity.

h. Training - Number of employees trained

The training expense is to be allocated based on number of employees trained, as this is not be allocated to employees which required no training.

3 0
3 years ago
Effective SCM requires reducing cost, increasing inventory velocity and compressing cycle time. What of the following is true? 1
-Dominant- [34]

Answer:

The answer is: 4) More frequently than not, the three objectives are compatible.

Explanation:

Toyota is famous for its Just in Time (JIT) management. They are the absolute kings of efficient supply chain management and they were able to do it by making the three objectives compatible. That doesn't mean that they all have to be dealt with at the same time and with the same intensity.

Toyota's first goal was to reduce costs and in order to reduce costs they had to increase their inventory turnover. Then they discovered that in order to keep increasing inventory turnover, they had to compress their cycle time. When they were able to compress their cycle time, their turnover increased even more and their costs were lowered. The system produces continuous feedback and their efficiency keeps increasing.

I once visited one of their factories that produces almost 500 pickup trucks per day and every single work station had available inventory for only 4 trucks; only 4 engines, 16 doors, etc. It is amazing how they do it considering that every 3 minutes one truck is fully produced.

The three objectives are not only compatible, but they are absolutely necessary for the SCM to be effective.

7 0
3 years ago
There are two universities, A and B, in a city. Tuition rises at University A and, as a result, the demand for attending Univers
LenaWriter [7]

Answer:

Substitutes

Explanation:

The education services at the two universities are substitutes to each other. The cross price elasticity of substitute goods is positive which indicates that as the price of one good increases then as a result the demand for other good increases and if the price of one good decreases then as a result the demand for other good decreases.

Now, if there is an increase in the tuition fees at University A, hence, this will increase the price of educational services at University A. Therefore, this will lead to an increase in the demand for educational services at University B.

4 0
3 years ago
Andrew, a project manager in a multinational company, accepts a very challenging project from his client as he feels that the em
shepuryov [24]

Answer:

Theory Y

Explanation:

In theory Y, managers have a positive and optimistic view of their employees.  They assume employees are happy to work and that workers are motivated by attaining objectives.  In theory Y, employees can work towards organizational goals through self- direction and self-control.

Theory Y assumptions allow employees to participate in solving organization problems. The managers consider employees are creative, imaginative and innovative people.  In theory Y, managers adopt a consultative style of management.

5 0
3 years ago
Other questions:
  • The value of all final goods and services produced within a country is termed its __________.
    14·1 answer
  • I have a fallacious argument is one that is based on
    11·1 answer
  • Magic Realm, Inc., has developed a new fantasy board game. The company sold 15,000 games last year at a selling price of $20 per
    13·1 answer
  • Which example BEST illustrates that GDP (gross domestic product) is not always a good indicator of economic health?
    5·2 answers
  • It costs Sheridan Company $28 of variable costs and $17 of allocated fixed costs to produce an industrial trash can that sells f
    12·1 answer
  • Under the Contract To Buy & Sell Real Estate, if Buyer fails to notify Seller by the New Loan Termination Deadline that Buye
    15·1 answer
  • Select the correct answer. What is the standard lettering height of lowercase letters when used in combination with uppercase le
    7·1 answer
  • Answer and I give u brainliest and extra pts
    6·1 answer
  • Olivia bakes cakes and Andrew grows corn. Olivia and Andrew both like to eat cake and eat corn. In which of the following cases
    15·1 answer
  • Economics can be divided into microeconomics and macroeconomics. One of these areas studies large units or groups and one studie
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!