If the ending inventory of a firm is overstated by $58,000, by how much and in what direction (overstated or understated) will the firm's operating income be misstated? (Hint: Use the cost of goods sold model, enter hypothetically "correct" data, and then reflect the effects of the ending inventory error and determine the effect on cost of goods sold.) Operating income by

The firm's operating income will be overstated by $58,000.

Explanation:

Cost of Goods Sold Model is as below

Opening Inventory                           xxx

Add: Cost of goods manufactured xxx

Cost of goods available for sale    xxx

Less: Ending inventory                     xxx

Cost of goods sold                           xxx

It is the cost of goods sold so obtained, that is taken to the income statement. Hence, overstatement of the ending inventory will result in understatement of the cost of goods sold to the same extent. Consequently the operating profit will be overstated to the same extent.

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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