Question

Based on the net income of the shop, the sales staff at Francesca's Fashions receive performance bonuses. In periods of declining prices, which inventory costing method would bring the sales staff the most benefit? A : LIFO B : physical inventory method C : FIFO D : average cost

Answer 1

Answer: A : LIFO

LIFO stands for Last in First Out

LIFO accounting is method which is applied in United States. All the other countries use FIFO (First in First Out).

Step-by-step explanation:

A LIFO method believes that the last entered item in the inventory will be first item which would have been sold. It is significant to track the inventory costs, in order to take the business expenses into account and those can be deducted from the business tax.

Suppose there is an entry like below

Batch 1: 1500 products produced Costs 4000

Batch 2: 2000 products produced Costs 2500

Batch 3: 3200 products produced Costs 3500

So LIFO assumes that Batch 3 is the first entry.