Which of the following statements is not valid as it applies to inventory costing methods?
A) If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices.
B) LIFO tends to smooth out the net income pattern by matching current cost of goods sold with current revenue, when inventories remain at constant quantities.
C) When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue.
D) The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

Question

Quizplus · Accepted Answer

The use of FIFO does not permit management to control the amount of net income through controlled purchases in the way that LIFO does. FIFO results in older, potentially lower costs being matched against current revenues, which is less influenced by recent purchase decisions compared to LIFO, where recent cost changes can directly affect cost of goods sold and net income.

Which of the Following Statements Is Not Valid as It