Which of the Following Statements Is CORRECT

question 4

Multiple Choice

Which of the following statements is CORRECT?

• A) A reduction in inventories held would have no effect on the current
• ratio.
• B) An increase in inventories would have no effect on the current
• ratio.
• C) If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover
• ratio will increase.
• D) A reduction in the inventory turnover ratio will generally lead to
• an increase in the ROE.
• E) If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease.

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Definitions:

Direct Materials

Raw materials that are directly traceable to the manufacturing of a specific product.

Actual Hours

The real number of hours worked, as opposed to planned or scheduled hours.

Standard Cost System

An accounting method that uses cost estimates for materials, labor, and overhead to control business costs.

Variable Overhead Spending Variance

The difference between the actual variable overhead incurred and the expected (or standard) variable overhead based on the actual level of production activity.