Accounting procedures allow a business to evaluate their inventory costs based on two methods: LIFO (Last In First Out) or FIFO (First In First Out). A manufacturer evaluated its finished goods inventory (in $000s) for five products with the LIFO and FIFO methods. To analyze the difference, they computed (FIFO - LIFO) for each product. Based on the following results, does the LIFO method result in a lower cost of inventory than the FIFO method? What is the null hypothesis? A) H₀: µ_d = 0 B) H₀: µ_d ≠ 0 C) H₀: µ_d ≤ 0 D) H₀: µ_d ≥ 0

Question

Quizplus · Accepted Answer

The null hypothesis statement should assume no difference between the LIFO and FIFO inventory costs, which means the difference in costs (FIFO-LIFO) should be equal to or lower than 0. Therefore, the correct null hypothesis statement is H₀: µ_d ≤ 0. The other options assume a two-tailed or one-tailed test, which is not specified in the question stem.

Accounting Procedures Allow a Business to Evaluate Their Inventory Costs