Answer:
Most states don't require limited liability companies (LLCs) to have operating agreements that regulate how profits will be distributed.
Since their LLC doesn't have an operating agreement, then the valid state law will rule how the profits will be divided. Generally speaking, but not always, state laws regarding LLCs divide profits equally among its members.
This could all have been avoided if the would have made an operating agreement before starting to work. Now probably the LLC will be dissolved.
The court will apply state LLC statutes, which usually result in equal division of profits unless the LLC's operating agreement states otherwise. Disputes over profit division could be avoided by drafting a clear operating agreement at the business's formation.
Explanation:When John, Lesa, and Tabir formed a limited liability company (LLC) and disagreed on the distribution of profits, the court will likely apply state LLC statutes to solve the profit allocation dispute. In most states, unless the LLC's operating agreement specifies otherwise, profits are typically divided equally among members regardless of capital contribution. This standard can vary, though. An operating agreement should have been created during the formation of the LLC that explicitly stated how profits would be divided. Moreover, in a traditional partnership, each partner might be responsible for the business's debts and could lose personal assets in a bankruptcy or lawsuit. However, an LLC provides the benefit of limiting the partner's liability to their investment in the company, thus helping to protect personal assets.
To avoid such disputes, it is essential to have a detailed operating agreement that covers profit distribution, among other governance issues, which is agreed upon by all members at the inception of the business.
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The marginal revenue received by a firm in a perfectly competitive market:____a.is greater than the market price.b.is less than the market price.c.is equal to its average revenue.d.increases with the quantity of output sold.
Answer:
C. Is equal to its average revenue.
The marginal revenue received by a firm in a perfectly competitive market is equal to its average revenue, which means it is always equal to the market price, reflecting the characteristic of firms in such markets as price takers.
Explanation:The marginal revenue received by a firm in a perfectly competitive market is equal to its average revenue. In a perfectly competitive market, the price of the product does not change with the production of an additional unit. Therefore, marginal revenue, which is the additional revenue gained by producing one more unit, is calculated by dividing the change in total revenue by the change in output quantity,
Therefore, marginal revenue for a perfectly competitive firm is always equal to the market price and does not vary with the quantity of output sold. This scenario helps in understanding how perfect competition works, where firms are price takers, meaning they accept the market price determined by the supply and demand forces.
Through shared values, organizational cultures can informally do all the following EXCEPT:
a. determine how people are treated, controlled and rewarded.
b. eliminate politics in the workplace
c. establish how cooperation, competition, conflict and decision making are handled.
d. motivate the ethical actions and communications of managers and subordinates.
Answer:
B
Explanation:
Organizational culture includes an organization’s expectations, experiences, philosophy, as well as the values that guide member behavior, and is expressed in member self-image, inner workings, interactions with the outside world, and future expectations. Culture is based on shared attitudes, beliefs, customs, and written and unwritten rules that have been developed over time and are considered valid (The Business Dictionary).
Organizational culture has to do with the culture of the firm, hence, it cannot eliminate politics in the workplace.
The United States Navy purchases uniforms from a single supplier. For the last twenty-five years, the trousers purchased from this supplier have not changed and have been bought every six months, in seven different sizes. This example is called aA. new-product purchaseB. repetitive purchaseC. straight rebuyD. modified rebuyE. standard order
Answer:
C. straight rebuy
Explanation:
Straight rebuy -
It is the method , when the customer purchases another identical goods in the same amount with the same terms and condition , from the very same supplier , is known as straight rebuy .
Hence , from the question ,
The United States Navy buys uniform from the same supplier for the last 25 years .
Therefore ,
the information given in the question is about straight rebuy .
In order for a firm to engage in price discrimination, it must be Select the correct answer below:
a) Able to separate consumers into different groups based on demand elasticities
b) A price taker Experiencing economies of scale in the relevant range of production
c) Producing in the inelastic portion of its demand curve to raise its price and increase total revenue
Answer:
a) Able to separate consumers into different groups based on demand elasticities
Explanation:
A firm is able to practice the price discrimination when following conditions are fulfilled:
- The firm should have market power and must be a price maker.
- The firm must be able to differentiate its customer base into different groups based on their demand elasticity.
- The firm is able to stop the cross selling between different groups of customers that are charged different prices.
Therefore, For firm to engage to price discrimination, it must be able to separate consumers into different groups based on their demand elasticities.
Suppose that under your health insurance policy, hospital expenses are subject to a $1,500 deductible and $300 per day copay. You get sick and are hospitalized for 5 days, and the bill (after insurance discounts are applied) comes to $7,000. How much of that hospital bill will you have to pay yourself
Answer:
$3,000
Explanation:
The patient is responsible for paying the deductible (amount of money the insured has to pay before the insurance company starts paying) and the daily copay (fixed amount that the patient has to pay):
deductible: $1,500
5 days copay: 5 x $300 = $1,500
total = $1,500 + $1,500 = $3,000
Peggy accepts a job offer as an advertising copywriter. Her boss immediately assigns her campaigns for products such as makeup and cleaning products. Peggy asks for different clients, but her boss tells her she should stick to what she and "her kind" know best. Peggy is experiencing: A. Sexism B. Homophobia C. Masochism D. Sexual orientation
Answer:
Sexism
wich is a discriminatory attitude of someone who underestimates people of the opposite sex.
It also distinguishes betwen the 2 sex
Peggy is experiencing Sexism, a form of discrimination where one is treated unfairly because of their sex or gender. The boss implies women should stick to topics they allegedly know best, thus suggesting limited knowledge and capability, which is clearly sexist.
Explanation:In the scenario described, Peggy is experiencing Sexism. Sexism is a discriminatory behavior where a person or group is unfairly treated based on their sex or gender. This frequently manifests in the workplace and can take many forms. In this case, Peggy's boss suggests that because she is a woman, she should only work on campaigns for products typically associated with women - such as makeup and cleaning products. His comment suggesting she stick to what 'her kind' know best, implies he believes women are only capable or knowledgeable about certain subjects, which is a clear case of sexism.
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aroline Watts is an employee of Lavender Creek Farm. She has come to you, the payroll accountant, for advice about her health insurance premiums, specifically if she should have them deducted pre-tax or post-tax. Required: What reason(s) would you give her for having the medical premiums deducted on a pre-tax basis?
Answer:
If Aroline decides to deduct her medical premiums on a pre-tax basis then she will save money since she will have a lower gross income subject to federal or state income taxes, and FICA taxes (social security and medicare).
If her gross income lowers, the taxes she pays will also be lower.
Which of the following is the international coordinator of regulatory policy for the world and makes short-term loans to member countries with deficits and provides foreign currencies to its members?a. World Trade Organizationb. International Monetary Fund
c. World Bank
d. United Nations
e. Multinational corporation
Answer:
World Bank
Explanation:
One of the core objectives of the world bank is to bridge the gap between rich and poor countries. They achieve this by providing short term loans to member countries with deficit.
Irving Fisher took the view that the institutional features of the economy which affect velocity change ________ over time so that velocity will be fairly ________ in the short run.
A) rapidly; erratic
B) rapidly; stable
C) slowly; stable
D) slowly; erratic
Answer:
C) slowly; stable
Explanation:
Velocity is defined as the rate of turnover of money.
Velocity = Nominal aggregate income / money supply
Irving Fisher posited that the factors that affect velocity are institutions that impact how transactions are conducted. According to him, institutional factors that affect the velocity of money change slowly. Therefore, in the short run, velocity is fairly stable.
The correct answer to the student's question is C) slowly; stable, reflecting Irving Fisher's view on the change in velocity of money over time being gradual, contributing to its stability in the short run.
Explanation:Irving Fisher took the view that the institutional features of the economy which affect velocity change slowly over time so that velocity will be fairly stable in the short run. The correct answer is C) slowly; stable. This perspective aligns with the idea that in the short run, velocity can be quite unpredictable and the stability of velocity in the long run is a key assumption of the Quantity Theory of Money. Despite this, the experiences in the 1980s through the 2000s showed that the velocity of M2 varied, leading to debates about the predictability and stability of velocity as a measure and thus its impact on monetary policy decisions. Monetarists claim that while velocity can be erratic in the short term, in the long term it tends to stabilize.
international trade, and changes in the aggregate price level.
a. Suppose that the MPC is equal to 0.75. What was the size of the change in government purchases of goods and services that resulted in the increase in real GDP of $200 million?
b. Now suppose that the change in government purchases of goods and services was $20 million. What value of the multiplier would result in an increase in real GDP of $200 million?
c. Given the value of the multiplier you calculated in part b, what marginal propensity to save would have?
Answer:
A) 50 millions
B) 10
C) 0.10
Explanation:
Government spending multiplier:
1/(1-MPC) = 1/MPS
1/(1-0.75) = 1/0.25 = 4
The government multiplier is 4 thus, to increase the GDP by 200 million the government spending should be of 50 millions as:
government spending x multiplier = increasein GDP
G x 4 = 200
G = 200/4 = 50
we are given with G and increase in GDP we should solve for multiplier:
government spending x multiplier = increasein GDP
20 x m = 200
m = 200 / 20 = 10
C) the multiplier is: 1/(1-MPC) = 1/MPS
if m = 10 then:
1/MPS = 10
MPS = 1/10 = 0.10
The size of the multiplier is determined by the proportion of the marginal dollar of income that goes into taxes, saving, and imports. The multiplier effect occurs when an initial increase in spending cycles repeatedly through the economy, having a larger impact than the initial dollar amount spent. To calculate the change in government purchases of goods and services required to increase real GDP by a certain amount, divide the desired increase in real GDP by the multiplier.
Explanation:The size of the multiplier is determined by the proportion of the marginal dollar of income that goes into taxes, saving, and imports. These factors are known as "leakages." The multiplier effect occurs when an initial increase in spending cycles repeatedly through the economy, having a larger impact than the initial dollar amount spent.
a. To calculate the change in government purchases of goods and services required to increase real GDP by $200 million, you need to divide the desired increase in real GDP by the multiplier. If the MPC is 0.75, the multiplier is 1/ (1 - MPC) = 1/ (1 - 0.75) = 1/0.25 = 4. So, the change in government purchases of goods and services would be $200 million divided by 4, which is $50 million.
b. In this case, you need to divide the desired increase in real GDP by the change in government purchases of goods and services to find the value of the multiplier. If the change in government purchases of goods and services is $20 million and the desired increase in real GDP is $200 million, the multiplier would be $200 million divided by $20 million, which is 10.
c. Given the value of the multiplier calculated in part b (which is 10), you can find the marginal propensity to save by subtracting it from 1. So, the marginal propensity to save would be 1 - 10, which is -9.
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Danny's boss is apathetic to whether Danny works at home, at the office, or from his beach house. All he cares about is that the project is completed on time, on budget, and with exemplary quality. Which characteristic of organizational culture describes this aspect of Danny's job?
A) low risk taking
B) high outcome orientation
C) high attention to detail
D) low aggressiveness
E) high stability
Answer:
B) high outcome orientation
Explanation:
For high outcome orientation organizational cultures, the final results are the most important thing. High achievement is very valued, and the actions taken to fulfill the goals are secondary. Only the final outcome counts.
This type of organization is usually more effective than means oriented organizations (where how work gets done is more important).
Castille Corp. purchases, for $600,000, land upon which a building and a dilapidated shed are situated. Castille plans to use the building as-is for operations but immediately razes the shed at a cost of $5,000 minus scrap recovery of $1,000. A recent tax appraisal of the property allocated $100,000 to the land and $400,000 to the building. In the entry to record the acquisition of the property,
at what amount will Castille debit Land?
a. $124,000
b. $120,800
c. $120,000
d. $100,000
Answer:
b. $120,800.00
Explanation:
Cost of the land $ 600,000/-
Associated expenses:
Razing down the shed: $ 5000
income from scrap: $ 1000
Total expenses $ 4000
The total cost of land =600,000+4000= $ 604,000
Tax allocation: land and building $ 500,000
land allocation will be: 100,000/500,000 x$ 604,000
=0.2x604,000
=$120,800.00
After reviewing the Law of Diminishing Marginal Returns, an economist would correctly conclude that in the short run: total production must fall after a certain point. price must fall after a certain point on the production function. the additional output of labor will eventually decrease as more workers are hired. wages of workers must eventually increase. the total cost will eventually fall after enough workers have been employed.
Answer:
The correct answer is: additional output of labor will eventually decrease as more workers are hired.
Explanation:
The law of diminishing return states that keeping other things constant if we go on increasing the quantity of one input, the marginal returns from that input will go on declining.
In other words, if we go on hiring an input the increase in output because of each additional input employed will go on declining.
For instance, keeping other things constant we go on hiring more and more workers the marginal product of workers or additional output created by each worker will go on declining.
A baseball fan with a Mike Trout baseball card wants to trade it for a Giancarlo Stanton baseball card, but everyone the fan knows who has a Stanton card doesn't want a Trout card. Economists characterize this problem as a failure of the:_________
Answer:
Principle of a double coincidence of wants.
Explanation:
The principle of a double coincidence of desires is the basis of an exchange economy. It occurs when two parties wish to exchange an item they each own without the exchange being made involving any monetary payment, so both parties need to be willing to agree to sell and buy each commodity. This economic phenomenon arises due to needs, desires or motivational situations for the exchange to take place in the same place and time.
Neue Inc reports net income of $500,000; during the year, the company declared $100,000 in preferred stock dividends and had an average of 250,000 shares of common stock outstanding. Earning per share rounded to the nearest cent will be:
Answer:
1.60
Explanation:
($500,000 - $100,000)/250,000
If the average of 250,000 shares of common stock outstanding the earning per share is $1.60.
Using this formula
Earnings per share (EPS) =Net income -Preferred stock dividend )/Average shares of common stock outstanding
Where:
Net income=$500,000
Preferred stock dividend=$100,000
Average shares of common stock outstanding=250,000
Let plug in the formula
Earnings per share (EPS) =($500,000-$100,000)/$250,000
Earnings per share (EPS) =$400,000/$250,000
Earnings per share (EPS) =$1.60
Inconclusion the average of 250,000 shares of common stock outstanding the earning per share is $1.60.
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The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price, P0? a. $18.62 b. $19.08 c. $19.56 d. $20.05 e. $20.55
Answer:
option (a) $18.62
Explanation:
Data provided in the question:
Dividend just paid, D0 = $0.75
Expected growth rate, g = 5.50%
Company's beta = 1.15
Market risk premium, Rm = 5.00%
Risk-free rate, Rf = 4.00%
Now,
D1 = D0 × ( 1 + g)
= $0.75 × ( 1 + 5.5% )
= $0.79125
Required rate of return = Rf + ( beta × Rm )
= 4.00% + ( 1.15 × 5.00% )
= 4.00% + 5.75%
= 9.75%
Also,
Stock price = D1 × ( R - g )
therefore,
Current stock price = $0.79125 ÷ (9.75% - 5.50%)
= $0.79125 ÷ 0.0425
= $18.617 ≈ $18.62
Hence,
The correct answer is option (a) $18.62
A report indicated that the average real wage in manufacturing declined by 2 percent between 1990 and 2000. If the CPI equaled 1.30 in 1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufacturing in 1990?
Final answer:
To find the average nominal wage in manufacturing in 1990, calculate the inflation-adjusted wage using the CPI. The average nominal wage in manufacturing in 1990 was approximately $35.
Explanation:
To find the average nominal wage in manufacturing in 1990, we need to calculate the inflation-adjusted wage using the Consumer Price Index (CPI). First, we can calculate the inflation rate by dividing the CPI in 2000 (1.69) by the CPI in 1990 (1.30). This gives us an inflation rate of approximately 1.3 (1.69 / 1.30).
Next, we can calculate the real wage in 2000 by multiplying the average nominal wage in 2000 ($35) by the inflation rate (1.3). This gives us a real wage of approximately $45.5 (35 * 1.3).
Finally, to find the average nominal wage in 1990, we need to adjust the real wage in 2000 for inflation. We divide the real wage in 2000 ($45.5) by the inflation rate (1.3). This gives us an average nominal wage in 1990 of approximately $35 (45.5 / 1.3).
At December 31, 2018 and 2019, Frist Company had outstanding 50 million common shares and 4 million shares of 10%, $10 par cumulative preferred stock. Net income for 2019 was $20 million. No dividends were declared in 2018 or 2019. EPS for 2019 was:
Answer:
The EPS for 2019 was $0.32
Explanation:
A Net Income $20,000,000
B No. of preferred Stock shares $4,000,000
C Par value per share $10.00
D = C*10% Dividend per share (10%) $1.00
E = B*D Preferred Dividend $4,000,000.00
F = A - E Net Income(Common Stockholders) $16,000,000.00
G Number of share(common stock)outstanding 50,000,000
H = F - G Earning per share for 2019 $0.32
Therefore,The EPS for 2019 was $0.32
Answer:
Eet
Explanation:
Outstanding stock of the West Corporation included 40,000 shares of $5 par common stock and 20,000 shares of 5%, $10 par non-cumulative preferred stock. In 2013, Hall declared and paid dividends of $8,000. In 2014. Hall declared and paid dividends of $24,000. How much of the 2014 dividend was distributed to preferred shareholders?
a) $16.000.
b) $10.000
c) $12,000.
d) None of these answer choices are correct.
Answer:
b) $10.000
Explanation:
In order to find the total preferred stock dividend we need to have the rate of the dividend, the par value of the preferred stock and the number of preferred stocks. In this question we are given the rate of the dividend of preferred stock which is 5%, we are also given the par value of the preferred stock which is $10 and we are also given the total number of preferred stock which is 20,000.
To find out how much dividend was distributed to preferred shareholders we need to use the formula
Rate of dividend*par value of stock * number of preferred shares
0.05*10*20,000= 10,000
Horseshoe Stables is losing significant market share and thus its managers have decided to decrease the firm's annual dividend. The last annual dividend was $0.90 a share but all future dividends will be decreased by 10 percent annually. What is a share of this stock worth today at a required return of 15 percent?
Answer:
$3.24
Explanation:
Data provided in the question:
Last annual dividend, D0 = $0.90
Growth rate, g = -10% = - 0.10 (negative sign means decrease)
Required return, r = 15% = 0.15
Now,
Future dividend, D1 = D0 × (1 + r)
= $0.9 × (1 + (-0.10) )
= $0.81
Current worth of the stock = $0.81 ÷ ( 0.15 - (-0.10) )
= $0.81 ÷ 0.25
= $3.24
Conventional database technologies often choke when trying to sift through the massive amounts of data collected by many of today's firms, leading to the rise of Hadoop and other "Big Data" technologies. True False
Answer:
true
Explanation:
The Hadoop software developed by Apache Technologies is an open source software library that allows the processing of big data across computers using a programming model. It was designed to facilitate the handling of big data from single servers to thousands of computers.
Most companies cannot afford to invest millions in computer hardware in order to support all their big data, so they have use Hadoop or similar software to handle it (it is cheaper this way).
_______________ is an explanation of the process by which firms acquire and retain one or more value-chain activities inside the firm, minimizing the disadvantages of dealing with external partners and allowing for greater control over foreign operations.
Answer:
Internalization theory
Explanation:
Developed in 1976 by Buckley and Cassom and Rugman in 1979, the theory of internalization is premised on the assumption that companies perform the operating processes performed by the market less efficiently internally, that is, each company has a set of specific factors that assist in gaining competitiveness.
The process of corporate internationalization occurs when the company internationalizes its operations across borders.
There are two fundamental principles that underpin the theory of internalization:
The benefits of market internalization must outweigh the costs. The transaction costs of internalization operations should be higher than the costs of their organizational integration.Mandy and Timothy exchange equipment in a like-kind Exchange. Mandy receives equipment with a fair market value of $28,000 and transfers equipment worth $20,000 (adjusted basis of $14,000) and cash of $8,000. What is Mandy’s realized and recognized gain?
Answer:
Realized gain of Mandy will be $6000
Explanation:
We have given Mandy receives equipment with a fair market value of $28000
Adjusted basis = $14000+$8000 = $22000
We have to find the Mandy realized gain
So Mandy realized gain is given by
Realized gain = market value - adjusted basis = $28000 - $22000 = $6000
So the realized gain of Mandy will be $6000
Information systems help achieve many important business objectives. When a manager does not receive forecasts, sales projections, or appropriate dashboards, the business objective of ______________ is not achieved.
Answer: Proper decision making
Explanation: Information is key factor when a business manager needs to make proper decisions.
The manager needs to get all the available charts, analysis, projections about a particular business to be taken. Poor information would increase the likelihood of business failure.
If Stan and Marcus, a new trainee at the manufacturing plant, are working together to resolve an issue on the line, they would be using joint problem solving as a means of transferring Stan's tacit knowledge to Marcus.A. TrueB. False.
Answer:
TRUE
Explanation:
Working together, both sides can share ideas and knowledge to generate an optimizing result. In the narrated case, Stan was already a company employee and Marcus is a trainee. Thus, Stan is expected to have accumulated knowledge about the characteristics of the type of project they are working on. Thus, it is natural and expected that Stan will transfer tactical knowledge to Marcus. However, this does not prevent Marcus from giving suggestions for improving plant processes. Thus, together they can produce a more efficient result for the factory.
"Coordinating fiscal policy," one of the five limits of fiscal policy, can be difficult because _____.
a. Economists often disagree about the meaning of certain statistics.
b. State and local government policies might interfere with the intended outcome of federal policies.
c. Government officials might take a long time to put these policies into effect.
d. Government spending changes must come from the limited funds of discretionary spending.
Answer:
The answer is letter B
Explanation:
Because State and local government policies might interfere with the intended outcome of federal policies.
Answer:
B: State and local government policies might interfere with the intended outcome of federal policies.
Suppose during the course of a year an economy produces $7 trillion of consumer goods, $1 trillion of investment goods, $5 trillion in government services, and has $1 trillion of exports and $2 trillion of imports. For that economy, GDP would be: A)$16 trillion. B) $14 trillion. C) $13 trillion. D) $12 trillion.
Answer:
D) $12 trillion.
Explanation:
GDP is the sum of all final goods and services produced in an economy within a given period which is usually a year.
GDP = Consumption + Investment + Government Spending + Net Export
Net Export = Export - Import
Net Export = $1 - $2 = -$1
GDP = $7 + $1 + $5 - $1 = $12
All calculations are in trillion
I hope my answer helps you.
A local barbecue joint makes one massive batch of potato salad each day. If they run out of this 37) savory side before the end of the day, their last few customers are less than satisfied, but if they make too much, they sell it to the local hog farmer for feed. Every serving costs an equivalent of $0.23 to make, but can be sold for $2.50 to customers and for $0.12 to the hog farmer. The average daily demand is for 400 servings with a standard deviation of 40 servings.How many servings should be made each day?A) 462
B) 455
C) 467
D) 453
Answer:
option (C) 467
Explanation:
Data provided in the question:
Every serving costs = $0.23
Selling cost to customer = $2.50
Selling cost to hog farmer = $0.12
Average daily demand, d = 400
Standard deviation, s = 40 servings
Now,
Cs = Selling price - Cost
= $2.50 - $0.23
= $2.27
Co = Cost - Discounted price
= $0.23 - $0.12
= $0.11
Service level = [tex]\frac{Cs}{Cs+Co}[/tex]
= [tex]\frac{\$2.27}{\$2.27+\$0.11}[/tex]
= 0.9537
For the service level of 0.9537, the z value from the standard z table = 1.68
Therefore,
Servings made each day = d + zs
= 400 + 1.68 × 40
= 467.2 ≈ 467
Hence,
The correct answer is option (C) 467
Of the following, which most closely describes the method by which companies engage and create benefits for their customers?
A. Supply chain
B. Value delivery network
C. Marketing channel
D. Customer relationship management
E. Channel level
Answer:
D. Customer relationship management
Explanation:
Customer relationship management is the approach that companies use to interact with its customers and this approach analyze customer interactions to improve its relationships with them and create benefits for their customers, As this leads to increased sales and profits.
In a process costing system, the calculation of equivalent units is used for calculating the dollar amount of ending inventory the dollar amount of the cost of goods sold for the accounting period the dollar cost of a particular job Both A and B are correct
Answer:
calculating the dollar amount of ending inventorythe dollar amount of the cost of goods sold for the accounting periodExplanation:
The calculation of equivalent units main purpose is to convert partially completed units that are still in production, into completed units according to the amount that could be produced using the same amount of inputs.
Once you calculated the equivalent units, you can assign a value to your ending inventory including both finished units and equivalent units. By doing this you can calculate the cost per unit and the COGS for the accounting period.
In a process costing system, equivalent units are used to allocate costs of a specific period over all units produced during that period, crucial for evaluating stock and cost of goods sold. 'Equivalent units' refers to fully completed units equivalent to the work done during a period, for fair cost distribution.
Explanation:In a process costing system, the calculation of equivalent units is used to determine the dollar amount of both the ending inventory and the cost of goods sold for an accounting period. The term 'equivalent units' refers to the amount of work done during a period, expressed in fully completed units. This concept helps to allocate the costs of an accounting period fairly over all units worked on during that period.
For example, if a factory produces 1000 units in a period, but 200 are only 50% complete at the end of the period, we would say there are 900 equivalent units. The costs of the accounting period would then be spread across these 900 units. Therefore, the calculation of equivalent units aids in evaluating the ending inventory and cost of goods sold in a process costing system.
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