- CFA Exams
- CFA Exam: Level I 2021
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 25. Inventories
- Subject 6. Financial Analysis of Inventories
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 |