The managers of Constantine Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in periods of declining prices?
A) LIFO
B) Average Cost
C) FIFO
D) Physical inventory method

Question

Quizplus · Accepted Answer

The LIFO (Last-In, First-Out) inventory costing method assumes that the most recently purchased inventory items are sold first. This means that in periods of declining prices, the older, higher-cost inventory remains on the balance sheet while the lower-cost inventory is being sold. This results in a lower cost of goods sold and a higher net income, which can lead to higher performance bonuses for the managers. Therefore, the managers of Constantine Company are likely to favor the LIFO inventory costing method in periods of declining prices.

The Managers of Constantine Company Receive Performance Bonuses Based on the Net