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 $1000) 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 $1000) 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 example involves comparing two different methods of evaluating inventory (LIFO and FIFO) for the same set of products, which suggests that a paired t-test is appropriate. A one sample test of means compares a sample mean to a known population mean, while a two sample test of means compares the means of two independent samples. A test of proportions would be used to compare the proportions of categorical data. Therefore, the best choice for this example is a paired t-test.

The question of whether LIFO is more effective in keeping the value of inventory lower is not relevant to the choice of statistical test. The paired t-test will determine if there is a significant difference between the inventory values calculated using LIFO and FIFO for each product, regardless of which method yields a lower overall value.

Accounting Procedures Allow a Business to Evaluate Their Inventory at LIFO