Which one of the following inventory cost flow assumptions will result in a higher inventory turnover ratio in an inflationary economy ?

C. Last In First Out (LIFO) Method

C) LIFO will be correct answer.

I believe by using LIFO, Inventory valuations will be lesser than other inventory valuation methods in inflationary economy (e.g. FIFO, weighted/Moving average or specific identification) and COGS will be higher. This situation will consequently impact in higher inventory Turnover by using formula of COGS/ Inventory.

 

Weighted average will help in high turnover ratio as it will show average profit which increase as per the cost of production variation

Probably i prefer FIFO,SINCE ITS MORE EFFICIENCY AND EASY TO OPERATE.

 

B) FIFO: It will  produce lower CGS and higher Net income

Answer............D. Specific identification

C.  LIFO - for manufacture Co.

D. Specific identification -for Trading