Which of the following statements is false regarding inventory costing methods? If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices.

 Which of the following statements is false regarding inventory costing methods?
If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices.
LIFO tends to smooth out the net income patterns since it matches current cost of goods sold with current revenue, when inventories remain at constant quantities.
When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue.
The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

Answer

The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

 You Answered Correctly!
This answer is correct because under FIFO, current purchases usually become part of ending inventory rather than cost of goods sold and thus do not affect current income. Under LIFO, however, current purchases are normally included in cost of goods sold and thus net income could be affected by controlled purchases.