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Question

In a period of falling prices, a firm reporting under LIFO compared to FIFO, will have a higher ______

A Cost of sales Correct Answer Incorrect Answer
B Gross Profit Margin Correct Answer Incorrect Answer
C Inventory Turnover Ratio Correct Answer Incorrect Answer
D Current Ratio Correct Answer Incorrect Answer
E None of these Correct Answer Incorrect Answer

Solution

With falling prices, LIFO COGS (Cost of goods sold) will include the cost of lower priced inventory and COGS will be less as compared to FIFO. Because of this, a firm will report a higher gross profit margin (Gross Profit/Sales) under LIFO than under FIFO, While LIFO Inventory will be higher and inventory turnover lower.

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