Question

Antelope Motors is considering which inventory costing method it should use. The business wants to maximize gross profits during a period of declining costs. Which inventory costing method should Antelope Motors​ select? If Antelope Motors wants to maximize gross profits during a period of declining​ costs, the business should select the_____inventory costing method.
A. FIFO.
B. LIFO.
C. Weighted-average.

Answer 1

Answer:

B. LIFO.

Explanation:

As the costs are declining the company should LIFO inventory method that would maximize the gross profit. When prices are increasing FIFO is usd to maximize the gross profit. But as they are decreasing the reverse would give the desired values.

In case the prices are increasing

FIFO assigns the lowest amount to cost of goods sold yielding the highest gross profit

LIFO assigns the highest amount cost of goods sold yielding the lowest gross profit and net income, which also yields a temporary tax advantage by postponing payment of some income tax

So we use LIFO to maximize the profit in case of decreasing costs.