Accounting Procedures Allow a Business to Evaluate Its Inventory Costs

question 18

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. Based on the following results,does the LIFO method result in a lower cost of inventory than the FIFO method? What is the decision at the 5% level of significance?

• A)Fail to reject the null hypothesis and conclude LIFO is more effective.
• B)Reject the null hypothesis and conclude LIFO is more effective.
• C)Reject the alternate hypothesis and conclude LIFO is more effective.
• D)Fail to reject the null hypothesis.

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Definitions:

Units-of-Production Method

A depreciation method where the expense is based on the asset's usage, output, or units produced, rather than time.

Straight-Line Method

A method of calculating depreciation by evenly allocating the cost of an asset over its useful life.

Capital Lease

A lease agreement that is recorded as an asset on a lessee's balance sheet, signifying that the lessee has substantially all the risks and rewards of ownership.

Delivery Truck

A vehicle designed for transporting goods from one location to another.