Accounting Procedures Allow a Business to Evaluate Its Inventory Costs

question 55

Multiple Choice

Accounting procedures allow a business to evaluate its inventory costs based on two methods: LIFO (last in first out) or FIFO (first in first out) . A manufacturer evaluated its finished goods inventory (in $000s) for five products with the LIFO and FIFO methods. To analyze the difference,they computed FIFO − LIFO for each product. We would like to determine if the LIFO method results in a lower cost of inventory than the FIFO method. What is the value of calculated t?

• A)+0.933
• B)±2.776
• C)+0.47
• D)−2.028

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Definitions:

Market Value

The current price at which an asset or service can be bought or sold in the open market, subject to supply and demand.

Reciprocal Services Method

A method used in cost accounting to allocate costs between interdependent departments, acknowledging mutual services they provide to each other.

Support Department Costs

The expenses associated with departments that do not directly produce goods or services but are necessary for the operation of the business, such as HR and IT departments.

Total Janitorial Department Cost

The complete expenses associated with maintaining and cleaning a facility, attributed to the janitorial department.