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?

Question

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The managers of Constantine Company are likely to favor LIFO (Last-In, First-Out) inventory costing method in periods of declining prices. This is because LIFO assumes that the most recently purchased inventory is sold first, which means the company reports higher cost of goods sold and lower net income during periods of declining prices. This, in turn, reduces the tax liability of the company and increases the chances of earning a performance bonus for the managers.

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