Final answer:
The argument not considered an advantage of LIFO compared to FIFO when inventory levels are stable or increasing is that cost assignments typically parallel the physical flow of goods (option c). This is because the physical flow of goods often matches FIFO rather than LIFO accounting. The correct answer is option c.
Step-by-step explanation:
If inventory levels are stable or increasing, an argument which is not an advantage of the LIFO method as compared to FIFO is c. cost assignments typically parallel the physical flow of goods. This choice is incorrect because LIFO, which stands for Last-In, First-Out, assumes that the last items placed in inventory are sold first, which often does not match the actual physical flow of goods. FIFO, or First-In, First-Out, on the other hand, assumes that older inventory is sold first which more closely reflects the actual physical flow for most types of inventory.
It is important to note that LIFO can offer tax advantages during periods of inflation by matching higher recent inventory costs against current sales, resulting in a higher cost of goods sold and potentially lower taxable income. However, this does not mean that LIFO assignments mirror the physical flow of goods. Moreover, during periods of price stability or deflation, LIFO does not provide the same tax benefits as it does in times of rising prices.
Thus, if we consider the multiple-choice options provided in relation to the advantages of LIFO in the context of stable or increasing inventory levels:
- a. Cost of goods sold tends to be stated at approximately current cost on the income statement.
- b. Income taxes tend to be reduced in periods of rising prices.
- c. Cost assignments typically parallel the physical flow of goods.
- d. Income tends to be smoothed as prices change over time.
Options a, b, and d can be considered advantages of using LIFO during inflationary periods, but option c does not represent an advantage of LIFO in any context.