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The managers of Hong Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in periods of declining prices?

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The inventory system that favors decreasing pricing is referred to as LIFO (Last in First Out).

What is the LIFO method?

LIFO (last in, first out) is a system of inventory accounting. The costs of the most recent items acquired (or generated) are expensed first under LIFO. LIFO is a method of accounting that is exclusively used in the United States and is controlled by Generally Accepted Accounting Principles (GAAP).

The firm that pays managers performance incentives based on net profits will see a decrease in prices in a favorable manner.

Thus, in the aforementioned case, the type of inventory used is Last in first out(LIFO).

Learn more about LIFO:

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