CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

The year-end balances in a company's LIFO reserve are $56.8 million in the company's financial statements for both 2015 and 2016. For 2016, the measure that will most likely be the same, regardless of whether the company uses the LIFO or FIFO inventory method, is the ______.
A. inventory turnover
B. gross profit margin
C. amount of working capital
Explanation: The LIFO reserve did not change from 2015 to 2016. Without a change in the LIFO reserve, the cost of goods sold would be the same under both methods. Sales are always the same for both, so gross profit margin would be the same in 2016. The FIFO inventory would be higher because the LIFO inventory and LIFO reserve are added to compute FIFO inventory. Because the inventory balances would be different under FIFO, inventory turnover and net working capital would also be different under FIFO.

User Contributed Comments 2

User Comment
simme123 Are the LIFO reserves included in COGS? I think, if there are LIFO Reserves, the COGS of LIFO will always be higher, so the Gross Profit Margin will always be lower as long as there are LIFO Reserves? Please give me some advice
nmech1984 not any clue...
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