Answer: lower gross profit and lower inventory turnover than using the LIFO inventory valuation method.

## Explanation When inventory unit costs are decreasing and inventory quantities are constant: **1. FIFO vs LIFO during decreasing costs:** - **FIFO (First-In, First-Out)**: The oldest (higher) costs flow to COGS, leaving the newer (lower) costs in ending inventory - **LIFO (Last-In, First-Out)**: The newest (lower) costs flow to COGS, leaving the older (higher) costs in ending inventory **2. Impact on Gross Profit:** - **FIFO**: Higher COGS (older, higher costs) → Lower Gross Profit - **LIFO**: Lower COGS (newer, lower costs) → Higher Gross Profit **3. Impact on Inventory Turnover:** Inventory Turnover = COGS / Average Inventory - **FIFO**: Higher COGS but lower ending inventory value → Higher numerator, lower denominator → Potentially higher turnover - **LIFO**: Lower COGS but higher ending inventory value → Lower numerator, higher denominator → Potentially lower turnover However, the question asks about FIFO compared to LIFO: - **Gross Profit**: FIFO has lower gross profit than LIFO during decreasing costs - **Inventory Turnover**: FIFO has lower inventory turnover than LIFO during decreasing costs because: - COGS difference (FIFO higher) is less significant than inventory value difference (FIFO much lower) - The denominator effect (inventory value) dominates the numerator effect (COGS) **Therefore, during decreasing costs:** - **FIFO results in lower gross profit AND lower inventory turnover than LIFO** - **Option A is correct** **Key Concept**: During decreasing costs, FIFO produces: - Lower gross profit (higher COGS) - Lower inventory turnover (lower COGS relative to even lower inventory value)

Author: LeetQuiz .