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The managers of Venice Company receive performance bonuses based on the net income of the firm.


The managers of Venice 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? (CSLO 1. CSLO 4) 


  • LIFO 

  • Average Cost 

  • FIFO 

  • Physical inventory method

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Answer #1

Since the bonuses are based on net income, the managers would try to increase it by inflating the Closing Inventory.

This can be done using the LIFO method because in periods of declining prices, the materials bought at the beginning of the the period would be priced higher, leading to a higher amount of closing inventories.

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