Reading 36: Inventories LOS d习题精选 2010, management, number, useful

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LOS d: Discuss and calculate ratios useful for evaluating inventory management.

The inventory turnover ratio and the number of days in inventory are least likely used to evaluate the:

A) effectiveness of a firm’s inventory management.

B) stability of a firm’s inventory levels.

C) age of a firm’s inventory.

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Neither metric is directly relevant in evaluating the stability of a firm’s inventory levels. Determining stability would presumably require other information such as purchase and sales levels, for example. The inventory turnover ratio and the number of days in inventory can be used to evaluate the relative age of a firm’s inventory as well as the effectiveness of a firm’s inventory management.

 

honeycfa

Which of the following ratio levels would suggest that a company is holding obsolete inventory?

A) Low inventory value compared to cost of goods sold.

B) Low inventory turnover ratio.

C) Low number of days in inventory.

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Low inventory turnover (high number of days in inventory) may be a sign of slow-moving or obsolete inventory, especially when coupled with low or declining revenue growth compared to the industry. Low inventory value compared to cost of goods sold, however, implies a high inventory turnover ratio. This suggests much less risk of obsolescence.

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