A growing firm is contemplating switching from a FIFO to a LIFO cost flow assumption forinventories and cost of goods sold because it has recently experienced increasing manufacturingcosts for its products and anticipates a prolonged period of increasing quantities andmanufacturing costs in the future. The firm wishes to know which of the following statementsabout the effect of the switch to LIFO is correct, relative to remaining on FIFO (ignore incometax effects):a. the current ratio will be higherb. the inventory turnover will be lowerc. the cost of goods sold to sales percentage will be lowerd. none of the above

Question

A growing firm is contemplating switching from a FIFO to a LIFO cost flow assumption for
inventories and cost of goods sold because it has recently experienced increasing manufacturing
costs for its products and anticipates a prolonged period of increasing quantities and
manufacturing costs in the future. The firm wishes to know which of the following statements
about the effect of the switch to LIFO is correct, relative to remaining on FIFO (ignore income
tax effects):

a. the current ratio will be higher
b. the inventory turnover will be lower
c. the cost of goods sold to sales percentage will be lower
d. none of the above

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