CFA Practice Question

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CFA Practice Question

A firm using the LIFO inventory valuation method in an inflationary environment will have ______ profit margins and ______ inventory turnover compared to a firm using FIFO.
A. higher; lower
B. lower; higher
C. lower; lower

User Contributed Comments 4

User Comment
kalps Inventory turnover will be higher as the more expensive inventory (i.e. last in) is neing sold.
poomie83 Inventory t/o = COGS/inventory

LIFO lead higher COGS and lower inventory
jcsk If the more expensive ones are being expensed as part of COG (sold) then shouldn't the closing inventory be valued at the cheaper? Have a look at FIFO VS LIFO example on wikipedia
GBolt93 Yes that's correct. COGS is higher, inventory is lower Turnover = COGS/Avg. Ending inventory, so turnover is higher. COGS is higher so NI is lower.
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