HH Company Uses LIFO

question 179

Multiple Choice

HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2018 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2017. Assuming HH has a 30% income tax rate:

• A) Its reported cost of goods for 2018 would have been $14 million less if it had used FIFO rather than LIFO for its financial statements.
• B) Its reported cost of goods for 2018 would have been $20 million less if it had used FIFO rather than LIFO for its financial statements.
• C) Its reported cost of goods sold for 2018 would have been $14 million higher if it had used FIFO rather than LIFO for its financial statements.
• D) Its reported cost of goods sold for 2018 would have been $20 million higher if it had used FIFO rather than LIFO for its financial statements.

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Definitions:

Break-even Sales

The amount of revenue needed to cover both fixed and variable costs, resulting in no profit or loss.

Variable Cost

Costs that change in proportion to the level of goods or services produced, such as materials and labor directly involved in production.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a company can increase profits by increasing sales.

Break-even Sales

The amount of revenue needed to cover both the variable and fixed costs of a business, resulting in zero profit or loss.