Which of the Following Is a Disadvantage to Business of the LIFO

question 40

Multiple Choice

Which of the following is a disadvantage to business of the LIFO method of applying costs to inventory?

• A) It is difficult for a computer program to apply the method.
• B) It understates the balance sheet value for inventory.
• C) Current income is matched with the most recent costs of acquiring goods.
• D) If it is allowed for tax purposes, in times of rising prices it results in less tax being paid in the current period.

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Definitions:

Total Contribution Margin

The difference between total sales revenue and total variable costs, indicating the contribution towards covering fixed costs and profit.

Sales Volume

The total number of units of product sold in a particular period.

Contribution Format

An income statement layout that segregates fixed costs from variable costs, thus highlighting the contribution margin.

Net Operating Income

The total profit of a company after operating expenses are subtracted from gross profit but before taxes and interest costs are deducted.