Walgreen Co.’s 2012 Form 10-K includes the following in the note that summarizes its accounting policies:
Inventories
Inventories are valued on a lower of last-in, first-out (LIFO) cost or market basis. At August 31, 2012 and 2011, inventories would have been greater by $1,897 million and $1,587 million, respectively, if they had been valued on a lower of first-in, first-out (FIFO) cost or market basis.
As a result of declining inventory levels, the fiscal 2012 LIFO provision was reduced by $268 mil-lion of LIFO liquidation. Inventory includes product costs, inbound freight, warehousing costs and vendor allowances not classified as a reduction of advertising expense.

Required
1. What inventory costing method does Walgreen Co. use? Explain why you think Walgreen Co. uses this method.
2. What is the amount of the LIFO reserve at the end of each of the two years?
3. Explain the meaning of the increase or decrease in the LIFO reserve during 2012. What does this tell you about inventory costs for the company? Are they rising or falling? Explain your answer.