Question
Low Tech Manufacturing Ltd. just commenced operations in the current year and has made an error when classifying its costs into inventoriable vs non-inventoriable costs.
Low Tech Manufacturing Ltd. just commenced operations in the current year and has made an error when classifying its costs into inventoriable vs non-inventoriable costs. Fortunately, the error only involved one cost item: the electricity cost of its head office. Some of the company's inventory remained unsold at the end of the current year.
Which of the following represents the likely impact of this error on the company's current year profit (compared to its current year profit if it did not make the error)?
1. Current year's profit under misclassification will be higher
2. Current year's profit under misclassification will be lower
3. Current year's profit will be the same
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