Which of the following ratios increases when a company switches from FIFO to LIFO during a period of increasing unit costs?
A) Profit margin.
B) Inventory turnover.
C)Quick.
D)Current.

Question

Quizplus · Accepted Answer

When a company switches from FIFO to LIFO during a period of increasing unit costs, it will reduce the value of its inventory, which will increase the cost of goods sold and reduce the profitability of the company. However, the inventory turnover ratio will increase because the cost of goods sold will be based on recent higher-priced inventory, resulting in a higher cost of goods sold and a lower, more frequently turning inventory. Quick and current ratios are not affected by the choice of inventory accounting method.

Which of the Following Ratios Increases When a Company Switches