Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, Company A's gross profit and inventory turnover, compared to Company B's, would be:

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Quizplus · Accepted Answer

When inventory costs are rising, FIFO will result in a higher gross profit compared to LIFO. This is because FIFO assumes that the older, cheaper inventory is sold first, leaving the newer, more expensive inventory in the balance sheet. As a result, the cost of goods sold is lower and gross profit is higher under FIFO. However, in periods of rising inventory costs, FIFO will also result in a lower inventory turnover compared to LIFO, as the cost of goods sold is lower and the value of inventory on the balance sheet is higher under FIFO. Therefore, Company A (using FIFO) will have a higher gross profit but a lower inventory turnover compared to Company B (using LIFO) in this scenario.

Company a Is Identical to Company B in Every Regard