Multiple Choice
Which inventory costing method assumes that the units sold are the most recent units purchased?
130
views
5. Inventory
Financial Statement Effects of Inventory Costing Methods
Multiple Choice
A company that assures product quality often sees which impact on its financial statements?
A
Higher cost of goods sold due to increased returns
B
Decreased sales revenue from dissatisfied customers
C
Increased write-downs of inventory
D
Lower inventory obsolescence expenses
Verified step by step guidance1
Understand the concept of inventory obsolescence: Inventory obsolescence occurs when inventory becomes outdated, damaged, or unsellable, leading to write-downs or expenses on the financial statements.
Analyze the impact of product quality assurance: When a company assures product quality, it reduces the likelihood of inventory becoming obsolete because high-quality products are less likely to be returned or unsellable.
Relate product quality assurance to financial statements: Lower inventory obsolescence expenses mean fewer write-downs of inventory, which positively impacts the company's financial health by reducing expenses.
Compare the given options: Higher cost of goods sold, decreased sales revenue, and increased write-downs of inventory are negative impacts, whereas lower inventory obsolescence expenses are a positive outcome of product quality assurance.
Conclude the reasoning: The correct answer is 'Lower inventory obsolescence expenses' because product quality assurance directly reduces the risk of inventory becoming obsolete, improving the company's financial performance.
Related Videos
Related Practice
