The managers of Venice 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

Using LIFO results in a lower net income during periods of declining prices because the cost of goods sold is higher, which reduces taxable income. This can benefit the managers in terms of performance bonuses since it lowers the net income of the firm. Therefore, they are likely to favor LIFO.

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