When LIFO is used and inventory quantities fall below the level of the previous period, the situation is called a:

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When LIFO is used and inventory quantities fall below the level of the previous period, it is referred to as LIFO liquidation. This results in the use of older, usually lower-priced inventory for cost of goods sold, leading to a higher cost of goods sold and lower net income. Therefore, option C is the best choice. Option A (LIFO adjustment) is not specific to a decline in inventory quantities, but rather a change in the LIFO layers due to an increase in the inventory quantities. Option B (LIFO failure) is not a commonly used term, and there is no clear definition for it. Option D (LIFO materiality) does not relate to a decline in the inventory quantities.

When LIFO Is Used and Inventory Quantities Fall Below the Level