The inventory turnover ratio is significantly affected by the choice of inventory accounting method.

Question

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The inventory turnover ratio is based on the cost of goods sold and the average inventory during a specific period. The inventory accounting method affects the cost of goods sold and the value of the ending inventory, which in turn affects the inventory turnover ratio. For example, using the FIFO method (first in, first out) will result in a higher cost of goods sold and a lower value of ending inventory compared to using the LIFO method (last in, first out). This will result in a higher inventory turnover ratio for FIFO and a lower inventory turnover ratio for LIFO.

The Inventory Turnover Ratio Is Significantly Affected by the Choice