Final answer:
Inventory costing systems can impact managers' bonuses by affecting the reported profits of a company.
Step-by-step explanation:
Inventory costing systems can impact managers' bonuses by affecting the reported profits of a company. These systems determine the value of inventory and the cost of goods sold, which directly impact the company's financial statements.
For example, in a First-In, First-Out (FIFO) inventory costing system, the cost of goods sold is calculated using the cost of the oldest inventory items first. This typically results in higher profits and higher bonuses for managers when the price of inventory is increasing over time. On the other hand, a Last-In, First-Out (LIFO) costing system calculates the cost of goods sold using the cost of the most recent inventory items first. This may result in lower profits and lower bonuses for managers when the price of inventory is increasing.
Ultimately, the choice of inventory costing system can significantly impact the financial performance of a company, which in turn affects the bonuses of managers.