If You Wish to Compute Economic Earnings and Are Trying

question 49

Multiple Choice

If you wish to compute economic earnings and are trying to decide how to account for inventory,

• A)FIFO is better than LIFO.
• B)LIFO is better than FIFO.
• C)FIFO and LIFO are equally good.
• D)FIFO and LIFO are equally bad.
• E)None of the options

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Definitions:

Operating Efficiency

A measure of how well a company uses its resources to produce outputs, often assessed by comparing inputs to outputs in production processes.

Absorption Costing

An accounting method that includes all manufacturing costs, direct and indirect, in the cost of a product.

Operating Income

The profit realized from a business's core operations, excluding deductions of interest and tax as well as income from non-operating activities.

Variable Costing

A method of costing that includes only variable production costs (direct material, direct labor, and variable overhead) in the cost of goods sold.