Question - A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of 2010. The manufacturer has been in operation for almost 40 years, and for the last decade, it has reported moderate growth in revenues. The firm changed from the LIFO method to the FIFO method and reported the following information (amounts in millions):
December 31 2009 2010
Inventories at FIFO cost $ 788.10 $861.7
Excess of FIFO cost over LIFO cost $(429.0) $(452.4)
Cost of goods sold (FIFO) - $4,150.8
Cost of goods sold (LIFO) - $4,417.1
Calculate the inventory turnover ratio for 2010 using the LIFO and FIFO cost-flow assumption methods. Explain why the costs assigned to inventory under LIFO at the end of 2009 and 2010 are so much less than they are under FIFO.