Cost Accounting: A Managerial Emphasis, 15th Edition
15th Edition
ISBN: 9780133803815
Author: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 20, Problem 20.1Q
Why do better decisions regarding the purchasing and managing of goods for sale frequently cause dramatic percentage increases in net income?
Expert Solution & Answer
To determine
Costing:
Costing is a technique used in cost accounting to determine the cost of a product. With the optimum use of costing a company can reduce the cost burden and increase the profit margin.
To explain: The reason for better decisions regarding the purchasing and managing of goods for sale frequently cause dramatic percentage increase in net income.
Answer to Problem 20.1Q
The net income is computed by the figures of sale and purchase so, if company manages purchase and sale optimally then there should be more net income of the company.
Explanation of Solution
The percentage of net income is depend on the percentage of cost of goods sold, so if percentage of cost of goods sold decreases the percentage of net income will increase.
Conclusion
Thus, manager should take better decision regarding purchase to increase the percentage of net income.
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Which inventory method will result in lower net income in a period of rising prices?
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1.Which of the following may not result to the amount of cost of sales?
a.Net purchases less net increase in inventory
b.Net decrease in inventory plus net purchases
c.Total goods available for sale less beginning inventory
d.Total goods available for sale less ending inventory
Chapter 20 Solutions
Cost Accounting: A Managerial Emphasis, 15th Edition
Ch. 20 - Why do better decisions regarding the purchasing...Ch. 20 - Name six cost categories that are important in...Ch. 20 - What assumptions are made when using the simplest...Ch. 20 - Give examples of costs included in annual carrying...Ch. 20 - Give three examples of opportunity costs that...Ch. 20 - What are the steps in computing the cost of a...Ch. 20 - Why might goal-congruence issues arise when...Ch. 20 - JIT purchasing has many benefits but also some...Ch. 20 - What are three factors causing reductions in the...Ch. 20 - You should always choose the supplier who offers...
Ch. 20 - Prob. 20.11QCh. 20 - What are the main features of JIT production, and...Ch. 20 - Distinguish inventory-costing systems using...Ch. 20 - Describe three different versions of backflush...Ch. 20 - Discuss the differences between lean accounting...Ch. 20 - Prob. 20.16ECh. 20 - Prob. 20.17ECh. 20 - Prob. 20.18ECh. 20 - Prob. 20.19ECh. 20 - Prob. 20.20ECh. 20 - Prob. 20.21ECh. 20 - Prob. 20.22ECh. 20 - Prob. 20.23ECh. 20 - Prob. 20.24ECh. 20 - Prob. 20.25PCh. 20 - Prob. 20.26PCh. 20 - Prob. 20.27PCh. 20 - Prob. 20.28PCh. 20 - Prob. 20.29PCh. 20 - Supply-chain effects on total relevant inventory...Ch. 20 - Prob. 20.31PCh. 20 - Prob. 20.32PCh. 20 - Prob. 20.33PCh. 20 - Prob. 20.34PCh. 20 - Lean accounting. Reliable Security Devices (RSD)...Ch. 20 - Prob. 20.36P
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- How would reported income differ if LIFO rather than FIFO were used when purchase prices are rising? When purchase prices are falling?arrow_forwardHow do you calculate the markup on cost of goods sold? Is the markup pure profit? Explain.arrow_forwardHow should accounting be able to catch up with the high sales return rates, particularly on inventory management?arrow_forward
- Which cost flow assumption generally results in the highest reported amount of net income when inventory costs are rising? Explain.arrow_forwardWhen purchase prices are rising, which of the following statements is true? a.LIFO produces a higher cost of goods sold than FIFO. b.LIFO produces a higher cost for ending inventory than FIFO. c.FIFO produces a lower amount for net income than LIFO. d.Weighted average cost produces a higher net income than FIFO or LIFO.arrow_forwardCan you explain why the answer is B and not C. If inventory prices are decreasing wouldnt LIFO result in a lower COGS and which would lead to a higher Net income thus higher income tax expense?arrow_forward
- Gross profit will result if: O Sales revenues are greater than operating expenses. Operating expenses are greater than cost of goods sold. Sales revenues are greater than cost of goods sold. O Operating expenses are less than net income.arrow_forwardUnder the LIFO cost flow assumption during a period ofinflation, which of the following is false? A. Cost of goods sold will be lower than under FIFO B. Gross margin will be lower than under FIFO C. Income tax expense will be lower than under FIFO D. Ending inventory will be lower than under FIFOarrow_forwardWhat is inventory shrinkage? The difference between product cost and retail selling price. The loss of sales revenue due to lowering sales prices. The discrepancy between the perpetual system generated Inventory level and actual physical inventory on hand. The inaccuracy of vendor invoices regarding what was physically shipped. What would be the most favorable cost flow assumption method when calculating gross margin in a time of high inflation? FIFO Specific LIFO Averagearrow_forward
- Which one of the following is an advantage of LIFO? a. In periods of rising prices, less income taxes are paid b. In periods of rising prices, more holding gains are reported in net income c. Record keeping and financial statement preparation are easier d. Conservative income statement and balance sheet disclousures result from falling pricesarrow_forwardGross income derived from business shall be equivalent to gross sales less sales returns, discount and allowances, but undiminished of cost of goods sold. TRUE OR FALSE?arrow_forwardIn a period of rising prices,a. cost of goods sold under LIFO will be less than under FIFO.b. gross profit under FIFO will be higher than under LIFO.c. LIFO inventory will be greater than FIFO inventory.d. net income under LIFO will be higher than under FIFO.arrow_forward
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