Management's Choice to Use LIFO or FIFO Can Make a Financial

question 77

Multiple Choice

Management's choice to use LIFO or FIFO can make a financial analyst's efforts to compare companies difficult.The financial analyst's job is made easier because of

• A)the requirement that the financial statements and tax return must use the same inventory valuation methodology
• B)the fact that most companies in an industry use the specific identification method
• C)the use of the weighed average method
• D)the disclosure of the "LIFO reserve"

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Definitions:

Maximize Profits

The process by which a firm adjusts its production and pricing strategies to earn the highest possible profit.

Economic Profits

Profits calculated by subtracting both the explicit and implicit costs of production from total revenues.

Monopolistically Competitive

Describes a market type where numerous sellers offer differentiated products, leading to competitive yet non-homogeneous markets.

Equilibrium

A condition where the supply and demand in the market are equal, leading to steady prices and amounts.