Question

Management may be able to manipulate net income using:___.

a. the fifo cost formula.
b. specific identification.
c. the average cost formula.
d. need more information to answer.

Answer 1

The correct answer is a. the FIFO cost formula.

Step-by-step explanation:

The correct answer to the question is a. the FIFO cost formula.

The FIFO (First-In, First-Out) cost formula is used in inventory valuation, and it assumes that the costs of the earliest acquired inventory items are the first to be recognized as expenses. By manipulating the FIFO cost formula, management can impact the cost of goods sold (COGS) and, subsequently, the net income.

For example, if management wants to boost net income, they can choose to sell inventory items with lower costs first, which would result in lower COGS and higher net income.