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,which of the following is true of Company A compared to Company B?

Question

Quizplus · Accepted Answer

In a period of rising inventory costs, the cost of goods sold (COGS) will be higher for both companies. However, since Company A is using FIFO, its COGS will reflect the older, lower cost inventory items, resulting in a higher gross profit compared to Company B. However, since FIFO assumes that older inventory items are sold first, the value of its ending inventory (which is based on the cost of the most recent purchases) will be higher, resulting in a lower inventory turnover compared to Company B. Therefore, Company A's gross profit is higher and inventory turnover is lower compared to Company B.

Company a Is Identical to Company B in Every Regard