Accounting procedures allow a business to evaluate their inventory at LIFO (Last In First Out) or FIFO (First In First Out). A manufacturer evaluated its finished goods inventory (in $ thousands) for five products both ways. Based on the following results, is LIFO more effective in keeping the value of his inventory lower? This example is what type of test?
A) One sample test of means.
B) Two sample test of means.
C) Paired t-test.
D) Test of proportions.

Question

Accounting procedures allow a business to evaluate their inventory at LIFO (Last In First Out) or FIFO (First In First Out). A manufacturer evaluated its finished goods inventory (in $ thousands) for five products both ways. Based on the following results, is LIFO more effective in keeping the value of his inventory lower?  This example is what type of test?
A) One sample test of means. 
B) Two sample test of means. 
C) Paired t-test. 
D) Test of proportions.

Quizplus · Accepted Answer

The given scenario involves comparing the finished goods inventory at LIFO and FIFO methods for five products. Since the same set of products are being evaluated under two methods, it is a paired t-test. The hypothesis is to determine if there is a difference in the value of inventory between LIFO and FIFO methods. Therefore, it is not a test of means or proportions and it involves two samples, but they are dependent on each other. Hence, the correct choice is a paired t-test. The question does not ask about the effectiveness of LIFO or FIFO.

Accounting Procedures Allow a Business to Evaluate Their Inventory at LIFO