A Large Manufacturer Recently Changed Its Cost-Flow Assumption Method for Inventories

Essay

A large manufacturer recently changed its cost-flow assumption method for inventories at the beginning of 2012. 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:
$\begin{array}{|l|l|l|}\hline \text { December 31: (amounts in millions) } & 2011 & 2012 \\\hline \text { Inventories at FIFO cost } & \$ 388.1 & \$ 419.7 \\\hline \text { Excess of FIFO cost over LIFO cost } & (229.0) & (210.4) \\\hline \text { Cost of goods sold(FIFO) } & & \$ 2,050.8 \\\hline \text { Cost of goods sold(LIFO) } & & \$ 2,417.1 \\\hline\end{array}$
Calculate the inventory turnover ratio for 2012 using the LIFO and FIFO cost-flow assumption methods. Explain why the costs assigned to inventory under LIFO at the end of 2011 and 2012 are so much less than they are under FIFO.