Question

Which of the following statements is not true as it relates to the dollar-value LIFO inven-tory method?

a. It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO.
b. Under the dollar-value LIFO method, it is possible to have the entire inventory in only one pool.
c. Several pools are commonly employed in using the dollar-value LIFO inventory method.
d. Under dollar-value LIFO, increases and decreases in a pool are determined and measured in terms of total dollar value, not physical quantity.

Answer 1

The incorrect statement about the dollar-value LIFO inventory method is that it erodes LIFO layers more easily than specific goods pooled LIFO, as dollar-value LIFO measures changes in dollar terms, not quantity, making layer erosion less likely.

Step-by-step explanation:

The statement that is not true as it relates to the dollar-value LIFO inventory method is: "It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO." This is because the dollar-value LIFO method actually provides a means to stabilize layers by measuring increases and decreases in dollar terms rather than in physical quantity. This method can make it less likely to erode LIFO layers than with specific goods pooled LIFO.

The dollar-value LIFO method allows for the entire inventory to be in one pool (option b), although it is common to have several pools (option c). This method focuses on changes in the total dollar value (option d), providing a way to account for inflation and manage inventory costs more effectively.

Economists use index numbers to measure the price level because they provide a means to track changes in the price level over time, standardizing the value of goods despite different quantities and dollar values. Unlike individual dollar values, index numbers allow for comparability and the assessment of real purchasing power over time. Plus, dollars are considered fungible, which means each dollar has an equal value regardless of the situation, making index numbers a more logical tool for analyzing price levels and economic trends.