If ending inventory of finished goods is understated, net income will be: A) Overstated B)Understated C) No change D) None of the aboveBalvan Company is a manufacturing firm that uses job-order costing. The company'sinventory balances at the beginning and end of the year were as follows:BalanceBeginning BalanceEnding BalanceRaw materials$14,000$22,000Work in process27,0009,000Finished goods62,00077,000The company applies overhead to jobs using a predetermined overhead rate based onmachine hours. At the beginning of the year, the company estimated that it would work33,000 machine hours and incur $231,000 in manufacturing overhead cost. The followingtransactions were recorded for the year:a.) Raw materials purchased: $315,000.b.) Raw materials requisitioned for use in production: $307,000 ($281,000 direct and $26,000indirect).c) The following employee costs were incurred:Direct labour: $377,000

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If ending inventory of finished goods is understated, net income will be: A) Overstated B) Understated C) No change D) None of the above

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Question

If ending inventory of finished goods is understated, net income will be: A) Overstated B)
Understated C) No change D) None of the above
Balvan Company is a manufacturing firm that uses job-order costing. The company's
inventory balances at the beginning and end of the year were as follows:
Balance
Beginning Balance
Ending Balance
Raw materials
$14,000
$22,000
Work in process
27,000
9,000
Finished goods
62,000
77,000
The company applies overhead to jobs using a predetermined overhead rate based on
machine hours. At the beginning of the year, the company estimated that it would work
33,000 machine hours and incur $231,000 in manufacturing overhead cost. The following
transactions were recorded for the year:
a.) Raw materials purchased: $315,000.
b.) Raw materials requisitioned for use in production: $307,000 ($281,000 direct and $26,000
indirect).
c) The following employee costs were incurred:
Direct labour: $377,000

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