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Name: A firm that uses LIFO accounting for inventory in times of rising inve
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Description: A firm that uses LIFO accounting for inventory in times of rising investory costs will always report lower profit margins than if it used FIFO. Is this correct?

Business

Accounting

A firm that uses LIFO accounting for inventory in times of rising investory costs will always report lower profit margins than if it used FIFO. Is this correct?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 8DQ: A high inventory turnover ratio provides evidence that a company is having problems with stockouts...

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Like many technology companies, TechnoTools operates in an environment of decliningprices. Its reported profits will tend to be highest if it accounts for inventory using the:A. FIFO method.B. LIFO method.C. weighted average cost method.
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Contrast the effects that LIFO vs. FIFO would have on ending inventory, net income and cash flow in a period in which prices are rising?
During a period of rising inventory costs and stable output prices, describe how net income and total assets would differ depending upon whether LIFO or FIFO is applied. Explain how your answer would change if the company is experiencing declining inventory costs and stable output prices.
CVP analysis makes all of the following assumptions except a change in volume is the only factor that affects costs. revenues are linear throughout the relevant range. the mix of products will not change. inventory levels will increase.
Which of the following is not a disadvantage of using the FIFO cost flow assumption? includes all the holding gains in income during periods of rising prices does not match current costs against current revenues provides a relevant ending inventory value creates the highest outflow for income taxes during periods of rising prices
The margin of safety can be defined as the amount by which sales can decrease beforelosses are incurred by the company.TRUEFALSE
In general, it's better to have a low inventory turnover ratio than a high one, as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock. If it is false give reason in two sentences.
Here are some statements about production to stock: Production to stock is justified when the plant has excess production capacity. Inventory production is desirable to avoid wasting resources. Inventory production may be justified when the manufacturer is facing sharp fluctuations in demand for its products. Inventory production may lead to an increase in the accounting profit that will be reported in the near future. Which of the above statements is true / correct? One answer must be chosen: Only statements 3 and 4 are correct. Just say 2. Just say 1. Just say 3. Just say 4.
A high inventory turnover ratio provides evidence that a company is having problems with stockouts and disgruntled customers. Do you agree? Explain.
If costs are rising, which of the following will be true?a. The cost of goods sold will be greater if LIFO is usedrather than weighted average.b. The cost of ending inventory will be greater if FIFO isused rather than LIFO.c. The gross profit will be greater if FIFO is used ratherthan LIFO.d. All of the above are true
Th e Industry and Business Risk excerpt states that, “Increased competition may lead tolower unit sales and excess production capacity and excess inventory. Th is may result in afurther downward price pressure.” Th e downward price pressure could lead to inventorythat is valued above current market prices or net realizable value. Any write-downs ofinventory are least likely to have a significant eff ect on the inventory valued using:A. weighted average cost.B. first-in, first-out (FIFO).C. last-in, first-out (LIFO).