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 What are the degrees of freedom
Accepted Solution
A:
Answer: The FIFO method result in lower cost of inventory than the LIFO method.Step-by-step explanation: In the FIFO method old inventories are used to determine cost of goods sold (COGS), which result to less income because COGS is lesser, while it is greater in LIFO. However, in LIFO, old and outdated inventories are valued lower than the present price. It not a good indicator of ending inventory value.B. To calculate the degree of freedom of the inventory sample given: 1. 225221, 2. 119100, 3. 100113, 4. 212200, 5. 248245.STEP 1. Find the mean or average of the samples.Let x be the sample average, and N the sample size which is 5x = 225221 + 119100 + 100113 + 212200 + 248245/5 = 180975.8 STEP 2. Degree of freedom Df is given as Df = N - 1Remember, N is the sample size given as 5. Df = 5 - 1 = 4.CONCLUSION:This shows that four numbers from the samples given have the freedom to vary as long as the average remains 180975.8.