Accounting Procedures Allow a Business to Evaluate Their Inventory Costs

question 57

Multiple Choice

Accounting procedures allow a business to evaluate their 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 are the degrees of freedom?

• A)4
• B)5
• C)15
• D)10

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Definitions:

Test Validity

The extent to which a test accurately measures what it is supposed to measure.

Reliability

The extent to which a measurement instrument yields reliable and uniform outcomes.

Validity

The degree to which an idea, inference, or measurement is substantiated and probably accurately reflects reality.

Reliability

How much a testing tool delivers steady and dependable results throughout time.