Explanation:
In periods of rising prices with constant inventory quantities:
FIFO (First-In, First-Out) vs LIFO (Last-In, First-Out):
Impact on Financial Ratios:
Let me re-examine:
Actually, FIFO has higher inventory values (and thus higher total assets) than LIFO in rising prices. Since total asset turnover = Sales / Average Total Assets, with the same sales numerator, FIFO has a larger denominator (higher total assets), so FIFO's total asset turnover is LOWER than LIFO's, not higher.
Let me check the options again:
A. total asset turnover than LIFO - FALSE (FIFO has lower total asset turnover) B. working capital turnover than LIFO - Working capital = Current Assets - Current Liabilities. FIFO has higher inventory (current asset), so higher working capital. Working capital turnover = Sales / Average Working Capital. With same sales, FIFO has higher denominator, so LOWER working capital turnover. C. days of inventory on hand than LIFO - Days of inventory on hand = (Ending Inventory / COGS) × 365. FIFO has higher ending inventory and lower COGS than LIFO. Both factors increase the ratio, so FIFO has higher days of inventory on hand than LIFO.
Therefore, the correct answer is C.
Key Points:
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All else being equal, in periods of rising prices and constant inventory quantities, FIFO most likely results in a higher:
A
total asset turnover than LIFO.
B
working capital turnover than LIFO.
C
days of inventory on hand than LIFO.