Question

Statistical analysis allows a manufacturer to evaluate its inventory costs based on two methods: LIFO (Last In First Out) or FIFO (First In First Out). The manufacturer evaluated its finished goods inventory costs in $000 for five products with the FIFO and LIFO methods. Based on the following results, does the FIFO method result in a higher cost of inventory than the LIFO method? To analyze the inventory costs, compute the difference by the FIFO cost minus LIFO cost for each product. For example, the difference for Product 1 is 4 (225 - 221). Suppose that the population of paired differences is normally distributed.

  

What is the test statistic for the hypothesis test?

Select one:

A. 0.470

B. 2.776

C. -2.028

D. 0.933

Answer 1

The data is not given so we just describe the procedure, how the problem is solved by taking an example.

As the data will be paired data (FIFO-LIFO) we will conduct paired t test in minitab.

Take the data as :

FIFO : 225, 228, 232, 237

LIFO :221, 227, 234, 236

the T statistic is 0.82 (p-value = 0.474>0.05 so null hypothesis is accepted)

Hence we conclude the FIFO method result in a higher cost of inventory than the LIFO method