Accounting Procedures Allow a Business to Evaluate Its Inventory Costs

question 72

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:

Purely Competitive Seller

A seller in a market characterized by many buyers and sellers, free entry and exit, and a homogeneous product where no single seller can influence market price.

Units of Output

A measure of production or productivity, essentially counting the quantity of goods or services produced.

Total Fixed Cost

The sum of all costs that remain constant regardless of the level of production or output.

Purely Competitive Seller

A seller in a market structure characterized by many sellers offering identical products, where no single seller can influence the market price.