Answer to Question #55349 in Accounting for Asif

Question

Parker Company had $5000000 in sales and reported a $300000 loss in its annual report to stockholders.According to a CVP analysis prepared for managements use,$5000000 in sales is the break even point for the company. Did the company's inventory level increase, decrease, or remain unchanged? Explain.

Answer 1

If Parker Company had $5000000 in sales and reported a $300000 loss in its annual report to stockholders, and if according to a CVP analysis prepared for managements use, $5000000 in sales is the break even point for the company, then the company's inventory level increased, because if there is a loss, then the costs increased with the increase in inventory.