Accounting procedures allow a business to evaluate its 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? This example is what type of test?
A)A one-sample test of means.
B)A two-sample test of means.
C)A paired t-test.
D)A test of proportions.

Question

Accounting procedures allow a business to evaluate its 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?  This example is what type of test?
A)A one-sample test of means. 
B)A two-sample test of means. 
C)A paired t-test. 
D)A test of proportions.

Quizplus · Accepted Answer

The given example involves comparing the difference between two methods of inventory evaluation for the same set of products. This is a paired comparison as the same products are evaluated using two different methods. Hence, a paired t-test is appropriate to determine if there is a significant difference between the means of the two methods. Option A and B involve comparing means of two independent samples, which is not applicable in this scenario. Option D, test of proportions, is not relevant as the data does not involve proportions.

Accounting Procedures Allow a Business to Evaluate Its Inventory Costs