When the Price of Inventory Is Decreasing, Which of the Following

question 53

Multiple Choice

When the price of inventory is decreasing, which of the following is true regarding the three best-known inventory valuation methods?

• A) The LIFO method will yield the smallest amount for cost of goods sold.
• B) The weighted-average method will yield the largest amount for closing inventory.
• C) The FIFO method will yield the highest amount for closing inventory.
• D) Both LIFO and FIFO will yield a smaller tax obligation than weighted-average.

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Definitions:

Least-Squares Regression

A statistical method used to determine the best-fitting line through a set of points, minimizing the sum of the squares of the distances of the points from the line.

Statistical Evidence

Data collected and analyzed for the purpose of supporting a conclusion or hypothesis.

Step-Variable Cost

The cost of a resource that is obtained in large chunks and that increases and decreases only in response to fairly wide changes in activity.

Contribution Margin

It is the difference between the sales revenue of a product and its variable costs. The contribution margin represents the portion of sales revenue that is not consumed by variable costs.