10. The LIFO costing method is more costly and time consuming than a FIFO system

Question

10. The LIFO costing method is more costly and time consuming than a FIFO system. Which of the following would be a valid justification for choosing LIFO?
A. It usually provides for more control over inventory
B. It usually provides managers with more useful information about the level of inventory by monitoring the cost level in the inventory account
C. The tax savings from using LIFO during an inflationary period exceeds the cost of using a LIFO costing system
D. It usually produces a higher net income when unit costs of inventory are rising

Explanation / Answer

Answer is C, assuming you meant "The tax savings from using LIFO during an inflationary period exceed the cost of using a FIFO costing system" Because an inflationary period means costs are going up, LIFO would mean the highest costs are used to calculate COGS. This results in higher expense, less net income, and therefore, less taxes.

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