Question

If a machine produced 400,000 widgits this year, but we received revenue for only 50,000 widgits this year, then a. We are going to show a loss because we had the costs of producing 350,000 more widgets than we sold. b. Inventory levels should be considerably lower at the end of the year because of this. c. According to the matching principle, the cost of producing the 400,000 widgits would be taken this year. d. Management would be held accountable for what happened to the other 350,000 widgits that were produced. e. Our costs for this year should include only the costs associated with the 50,000 that we sold.

Answer 1

Answer- The Correct answer is E) Our costs for this year should include only the costs associated with the 50,000 that we sold.

As Total number of Units Produced are 400000 widgits and only 50000 Units are sold hence only costs for 50000 units shall be taken for this year and the cost of 350000 Units shall be reflected in the Closing Stock for the Year.

A is Incorrect as we cannot show losses for the units that are unsold as they can be sold in next Years

B is Incorrect as the Inventory Will be higher and not Lower at end of year due to huge amount of Unsold stocks.

C is Incorrect as If Matching Principle is Follwed then cost of 50000 Units shall be taken and Not of 400000 Units.

D. is Incorrect as Management cannot be held accountable for remaining 35000 Units as they can be sold in next Years.