Question

Based on the net income of the shop, the sales staff at Francesca's Fashions receive performance bonuses. In periods of declining prices, which inventory costing method would bring the sales staff the most benefit? A : average cost B : LIFO C : physical inventory method D : FIFO

Answer 1

Answer:

The correct answer is B.

Explanation:

In periods of decreasing prices, the LIFO method will give greater benefits to the sellers since they will be selling those products that entered with a higher price since the new ones are entering with lower prices. This method is based on the "last in, first out" order, so the item being taken out of the warehouse is the newest in its class. Since prices generally rise over time, this method records the sale of the most expensive item.

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Answer 2

Answer:

In periods of declining prices, LIFO inventory costing method would bring the sales staff the most benefit.

Explanation:

LIFO inventory costing method uses the last purchased item to calculate the cost of each sale, in a declining prices situation it would be cheaper than the older items. If costs are cheaper the the profit would be bigger, so it would happen the same with the bonuses.