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      Question

      In a period of falling prices, a firm reporting under LIFO compared to reporting under 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 the above 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 COGS. Because of this, the firm reports 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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