Answer (B) is correct . The inventory turnover ratio equals the cost of goods sold divided by the average inventory. LIFO assumes that the last goods purchased are the first goods sold and that the oldest goods purchased remain in inventory. The result is a higher cost of goods sold and a lower average inventory than under other inventory cost flow assumptions if prices are rising. Because cost of goods sold (the numerator) will be higher and average inventory (the denominator) will be lower than under other inventory cost flow assumptions, LIFO produces the highest inventory turnover ratio.
Answer (A) is incorrect because When prices are rising, LIFO results in a higher cost of goods sold and a lower average inventory than under other inventory cost flow assumptions.
Answer (C) is incorrect because When prices are rising, LIFO results in a higher cost of goods sold and a lower average inventory than under other inventory cost flow assumptions.
Answer (D) is incorrect because When prices are rising, LIFO results in a higher cost of goods sold and a lower average inventory than under other inventory cost flow assumptions.
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