A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at

Question:

A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of Year 4. The manufacturer has been in operation for almost forty years, and for the last decade has reported moderate growth in revenues. The firm changed from the LIFO method to the FIFO method and reported the following information:

Calculate the inventory turnover ratio for Year 4 using both the LIFO and FIFO cost-flow assumption methods, and explain why the costs assigned to inventory under LIFO at the end of Year 3 and Year 4 are so much less than under FIFO.

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,...