Company A and Company B are similar retailing businesses. A uses FIFO, and B uses LIFO. In a period of rising prices, A should have a higher inventory turnover than
B.In a period of rising prices, FIFO will result in lower cost of goods sold (earlier, lower prices) and higher ending inventory (more recent, higher prices). The lower cost of goods sold divided by the higher inventory will produce a lower inventory turnover.

Question

Quizplus · Accepted Answer

In a period of rising prices, FIFO results in lower cost of goods sold and higher ending inventory, leading to a lower inventory turnover ratio compared to LIFO, which results in higher cost of goods sold and lower ending inventory.

Company a and Company B Are Similar Retailing Businesses