During a period of declining inventory costs, which of the following inventory costing methods should be used by a company that intends to minimize its income tax expenses?

A. Specific identification
B. FIFO
C. Weighted average
D. LIFO

Question

13-07-2024
Business

Answered

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During a period of declining inventory costs, which of the following inventory costing methods should be used by a company that intends to minimize its income tax expenses?

A. Specific identification
B. FIFO
C. Weighted average
D. LIFO

Sagot :

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GinnyAnsweridn GinnyAnsweridn · Answer 1 · 2024-07-13T14:33:58-04:00

Final answer:

Using LIFO method optimizes tax expenses during declining inventory costs.

Explanation:

When a company aims to minimize income tax expenses during a period of declining inventory costs, it should use LIFO (Last In, First Out) as the inventory costing method. LIFO assumes that the most recently purchased items are sold first, which helps to match current costs with current revenues, thus reducing taxable income. This method can result in lower taxable income during periods of declining inventory costs compared to FIFO, weighted average, or specific identification methods.

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