Question

Accounting procedures allow a business to evaluate their inventory costs based on two methods: LIFO (last in first out) or FIFO (first in first out). A manufacturer evaluated its finished goods inventory (in $000s) for five products with the LIFO and FIFO methods. To analyze the difference, they computed FIFO − LIFO for each product. We would like to determine if the LIFO method results in a lower cost of inventory than the FIFO method.

Product	FIFO (F)	LIFO (L)
1	225	221
2	119	100
3	100	113
4	212	200
5	248	245

If you use the 5% level of significance, what is the critical t-value?

Multiple Choice

• ±2.132

• ±2.228

• +2.132

• +2.262

Answer 1

This is right tailed test, for α = 0.05 and df = 4
Critical value of t is 2.132.
Hence reject H0 if t > 2.132