Final answer:
The FIFO method typically results in the highest manager's bonus in a market with rising prices due to lower COGS and higher net income, whereas LIFO can lead to higher bonuses when prices are falling. Both Weighted Average and Specific Identification do not tend to consistently result in the highest bonuses compared to FIFO or LIFO.
Step-by-step explanation:
The method of inventory costing that produces the highest bonus for a company's manager depends on market conditions, specifically whether prices are rising or falling. In a period of rising prices, the First-In, First-Out (FIFO) method often results in a higher reported net income, because older, lower-cost inventory is used up first, making the cost of goods sold (COGS) lower while the newer, more expensive inventory remains on the balance sheet. Higher net income can lead to higher bonuses if the manager's compensation is tied to profitability metrics.
On the other hand, if prices are falling, the Last-In, First-Out (LIFO) method could result in a higher bonus, as the more expensive inventory would be used first, decreasing the COGS. The Weighted Average method smoothens out the effects of price changes over time. Specific Identification method is usually feasible for unique, high-value items and does not generally apply to standard inventory items. It allows a company to specifically select the costs of the item sold, which may be of any cost depending on the specific items chosen.