Question

Like many technology companies, TechnoTools operates in an environment of declining prices. Its reported profits will tend to be highest if it accounts for inventory using the:

a) FIFO method
b) LIFO method
c) Weighted-average method
d) Specific identification method

Answer 1

TechnoTools should use the FIFO method to account for inventory in order to maximize reported profits in an environment of declining prices.

Step-by-step explanation:

The reported profits of TechnoTools will tend to be highest if it accounts for inventory using the FIFO method. FIFO stands for First-In, First-Out, which means that the inventory items that were acquired first are sold first. In an environment of declining prices, using the FIFO method will result in higher profits because the older, lower-cost inventory items are being sold first, while the newer, higher-cost items remain in inventory.