A LIFO ________ occurs when inventory quantities fall below the level of the previous period.

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A LIFO liquidation occurs when inventory is sold and the quantity of inventory remaining falls below the level of the previous period. This results in the use of older, lower cost inventory layers which can distort COGS and result in higher gross profit margins. It can also trigger tax consequences as the liquidation of older, lower cost inventory layers can create taxable income.

A LIFO ________ Occurs When Inventory Quantities Fall Below the Level