Explanation

An understatement of beginning inventory understates COGS.

As it reduces the starting point for calculating COGS, resulting in fewer costs being included.

This leads to artificially low COGS, overstating Gross Profit and Net Income.

Explanation

The formula that represents compound interest is: P(1 + r/n)^(nt)

This formula calculates the future value of an investment or loan.

It taking into account the principal amount (P), interest rate (r), time (t), and compounding frequency (n).

Explanation

The time value of money is important in NPV because it:

• Reflects opportunity cost
• Accounts for inflation
• Standardizes project evaluations

Discounting cash flows considers alternative investments, adjusts for inflation, and enables comparison of projects with different cash flow patterns.

Explanation

IRR considers the time value of money, while ROI does not.

This making IRR a more accurate measure of profitability for investments with cash flows over time.

IRR and ROI both measure profitability.

Explanation

A project with a positive IRR may still be rejected if:

• High initial cost exceeds available budget or exceeds prudent financial risk
• Insufficient resources (e.g., personnel, equipment) are available to execute the project
• Strategic misalignment with company goals or priorities, despite financial attractiveness

Explanation

A high IRR indicates High risk.

As projects with high potential returns often come with higher levels of risk.

Explanation

NPV is an alternative to IRR for project evaluation, as it also assesses a project's profitability.

NPV calculates the present value of future cash flows.

It providing a dollar value of the project's expected returns, whereas IRR provides a percentage return.

Explanation

The primary purpose of calculating COGS is to calculate gross profit, which is revenue minus COGS.

This helps evaluate profitability and make business decisions, such as pricing and cost control.

Explanation

In periods of rising prices, FIFO (First-In, First-Out) yields the highest gross profit because:

• Older, lower-cost inventory is sold first
• Cost of goods sold is lower
• Gross profit is higher

Explanation

COGS (Cost of Goods Sold) is a critical component in calculating Gross Profit.

It is the difference between Net Sales and COGS.

Gross Profit = Net Sales - COGS