Accounting Procedures Allow a Business to Evaluate Their Inventory at LIFO

question 17

Multiple Choice

Accounting procedures allow a business to evaluate their inventory at LIFO (Last In First Out) or FIFO (First In First Out) . A manufacturer evaluated its finished goods inventory (in $000) for five products both ways. Based on the following results, is LIFO more effective in keeping the value of his inventory lower? What is the null hypothesis?

• A) µF = µL, or µd = 0
• B) µF ≠ µL, or µd ≠ 0
• C) µF ≤ µL
• D) µF > µL
• E) None of these statements are correct

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Definitions:

Net Operating Income

An accounting term that represents the revenue minus the cost of goods sold and operating expenses, excluding taxes and interest.

Degree Of Operating Leverage

A measure, at a given level of sales, of how a percentage change in sales will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income.

Variable Expenses

Costs that vary in direct proportion to changes in an activity level or volume, such as sales commissions.

Sales Increase

The rise in the volume or amount of sales or revenue a company achieves in a specific period compared to a previous period.