Accounting Procedures Allow a Business to Evaluate Its Inventory Costs

question 114

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:

Cost-Cutting Measure

Strategies or actions implemented by a company to reduce its expenses and improve profitability.

Shareholder Value

The financial worth that a company delivers to its shareholders, often measured by stock price appreciation and dividend payouts.

Firms Fail

The situation where businesses are unable to continue operations due to financial problems, market competition, or poor management.

Due Diligence

The comprehensive appraisal of a business or individual prior to signing a contract, or an act with a certain standard of care.