Question

In which industry does the use of LIFO provide a tax benefit?

1) Manufacturing industry
2) Service industry
3) Retail industry
4) Agricultural industry

Answer 1

The LIFO method can provide tax benefits in the Retail industry. Marginal tax rate influences labor supply decisions, and a tax cut does not always increase tax revenues as per the Laffer curve.

Step-by-step explanation:

The use of Last-In, First-Out (LIFO) accounting can provide a tax benefit in various industries depending on the economic conditions and price changes of inventory. However, one industry where LIFO can particularly benefit in deferring income tax is the Retail industry. When prices are rising, the LIFO method assumes that the most recently acquired items (presumably at higher prices due to inflation) are sold first, which results in a higher cost of goods sold (COGS) and thus a lower taxable income. This deferral of tax can be advantageous for retail businesses that experience significant price inflation in their inventory.