Parker Products, Inc. is a manufacturer whose absorption costing income statement reported sales of $123 million and a net operating loss of $18 million. According to a CVP analysis prepared for management, the company’s break-even point is $115 million in sales.Required:Assuming that the CVP analysis is correct, is it likely that the company’s inventory level increased, decreased, or remained unchanged during the year? Explain.

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Q: Deducing Changes in Inventories Parker Products, Inc. is a manufacturer whose absorption costing…

A:

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.