During deflation and decreasing inventory quantities, a company using last-in first-out (LIFO) rather than first-in first-out (FIFO). What is the effect on inventory turnover and net profit mar-gin Inventory Turnover Net Profit Margin ①A. higher lower ②B. higher higher ③C. lower higher
A．
| A.① |
B．
| B. ② |
C．
| C.③ |
参考答案：C
解析：Inventory turnover, defined as COGS/Average inventory, if often meaningless for LIFO companies due to the mismatching of costs. The numerator represents current costs, whereas the denominator reports outdated historical costs. Thus, the turnover ratio under LIFO will, when prices decrease, trend lower because of small COGS and larger inventory. Net profit margin, defined as EAT/Sales, is higher during periods of decreasing profits for LIFO companies. LIFO leads to a smaller COGS, which reduces EAT, without affecting sales.