Final answer:
The incorrect statement related to the LIFO method is option c: LIFO is appropriate where prices tend to lag behind costs. LIFO is usually beneficial in an inflationary environment where prices are rising as it aligns tax burden with higher inventory costs.
Option 'C' is the incorrect.
Step-by-step explanation:
The incorrect statement related to the Last-In, First-Out (LIFO) method among the options provided is option c: LIFO is appropriate where prices tend to lag behind costs. LIFO, or Last-In, First-Out, is an inventory valuation method in accounting that assumes the last items placed in inventory are the first sold during an accounting period. The costs paid for those last items are the ones used up first.
Option a states that LIFO is preferable in situations where it has been traditional. This statement is accurate because it can be far less disruptive to maintain existing accounting practices. Option b claims that LIFO is preferable if revenues have been increasing faster than costs, which can also be true. This is because LIFO can help align tax burden more closely with cash flow when the cost of goods sold is rising.
Option d suggests that LIFO is not appropriate in situations where specific identification is traditional. This is correct, as the specific identification method is used when inventory items are unique and can be specifically identified, something that is not compatible with LIFO's assumption about inventory use.
In contrast, option c implies that LIFO is appropriate when prices lag behind costs. This is not typically the case since LIFO tends to increase the cost of goods sold by using the prices of the most recently acquired inventory, which can be more beneficial in an inflationary environment where prices are rising, not lagging. So, this statement is the incorrect one with reference to LIFO usage.