Which of the Following Inventory Valuation Methods Minimizes Income Tax

question 12

Multiple Choice

Which of the following inventory valuation methods minimizes income tax expense during a period of rising inventory costs?

• A) first-in, first-out
• B) last-in, first-out
• C) weighted-average
• D) specific identification

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Definitions:

Profit Margin

The percentage of revenue that remains as income after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from total revenue.

Fixed Asset Capacity

The maximum production or service level that a company can sustain with its current fixed assets, such as machinery and equipment.

Current Sales

The total recorded sales of a company within the current financial period.

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without increasing its leverage or equity.