- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 6. Analysis of Inventories
- Subject 2. The Effects of Inflation and Deflation on Inventories, COGS and Gross Margin
CFA Practice Question
In a period of declining prices, which of the following statements would be true?
B. FIFO would produce higher gross profit margin percentages than would LIFO.
C. Average costs would produce higher gross profit margin percentages than would LIFO.
D. FIFO would produce higher gross profit margin percentages than would average costs.
A. LIFO would produce higher gross profit margin percentages than would average costs.
B. FIFO would produce higher gross profit margin percentages than would LIFO.
C. Average costs would produce higher gross profit margin percentages than would LIFO.
D. FIFO would produce higher gross profit margin percentages than would average costs.
Correct Answer: A
If prices are declining, LIFO would provide lower cost of goods sold, since lower costs would be allocated to the items sold.
User Contributed Comments 1
| User | Comment |
|---|---|
| teddajr | During Price decline, COGS-> LIFO < AvgCost < FIFO But, In Price Increase, COGS-> FIFO < AvgCost < LIFO |