Accounting Procedures Allow a Business to Evaluate Its Inventory Costs

question 113

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 value of calculated t?

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

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Definitions:

Factory Overhead Cost

Indirect costs incurred during the manufacturing process, not directly associated with the production of goods, like utilities and rent for the manufacturing space.

Materials

The physical substances or components used in the production of goods.

Factory Overhead

Costs associated with the manufacturing process that cannot be directly traced to a specific product, including utilities, depreciation, and maintenance of equipment.

Product Cost

The total cost associated with making or acquiring a product, including raw materials, labor, and overhead expenses.