The managers of Hong Company receive performance bonuses based on the net income of the firm.Which inventory costing method are they likely to favor in periods of declining prices?
A)LIFO
B)Average-Cost
C)FIFO
D)Physical inventory method

Question

Quizplus · Accepted Answer

LIFO (Last-In, First-Out) is likely to be favored by managers of Hong Company in periods of declining prices because it results in a lower cost of goods sold and, therefore, a higher net income. This is because LIFO assumes that the most recently purchased inventory is sold first, which means that the cost of goods sold is based on the higher prices of more recent purchases. In periods of declining prices, this results in a lower cost of goods sold and a higher net income.

The Managers of Hong Company Receive Performance Bonuses Based on the Net