Question

The tax benefit that the LIFO method provides might get nullified when:

a. unit costs tend to decrease as production increases.
b. unit costs tend to increase as production increases.
c. revenues are increasing faster than costs.
d. a fairly constant "base stock" is present.

Answer 1

The tax benefit provided by the LIFO method may be nullified when unit costs tend to decrease as production increases.

Step-by-step explanation:

The tax benefit provided by the LIFO method may be nullified when unit costs tend to decrease as production increases.

In the LIFO (Last-In, First-Out) method, the cost of goods sold is based on the assumption that the most recently acquired inventory is the first to be sold. As unit costs decrease with increasing production, the newer inventory will have lower costs, resulting in a higher cost of goods sold and lower inventory value. This reduces the tax benefit that the LIFO method provides.