Question

Earl explained to Bubba that one of the three inventory accounts in a manufacturing business is called Finished Goods. This account:

A. Consists of completed goods that have not yet been sold.
B. Consists of goods being manufactured that are incomplete.
C. Consists of materials to be used in the production process.
D. Consists of the cost of new materials used, labor but not overhead.

Answer 1

The correct answer is A, as Finished Goods consist of completed goods that haven't been sold. Finished Goods differ from Work in Process and Raw Materials. This classification is significant in GDP measurement as it counts toward national output when sold.

Step-by-step explanation:

The correct answer to the question "Which inventory account in a manufacturing business is called Finished Goods?" is A. Consists of completed goods that have not yet been sold. Finished Goods inventory represents products that have completed the production process but have not yet been sold to customers. This is distinct from Work in Process (WIP), which includes partially completed goods, and Raw Materials, which includes the basic inputs to the production process.

Understanding the classification of inventories is crucial within the national income accounting, as it affects the measurement of Gross Domestic Product (GDP). Goods that are still unsold sit in inventories and are a part of the nation's total output. When these finished goods are sold, they contribute to the revenues of a firm, ultimately impacting the GDP measurement.