Sandra Is Analyzing the Cash Cycle of Her Audit Client

question 3

Multiple Choice

Sandra is analyzing the cash cycle of her audit client.Which of the following could indicate a liquidity problem?

• A)obsolete inventory
• B)high level of inventory
• C)inventory on consignment
• D)backordered inventory

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Definitions:

Finished Goods Inventory

Inventory of finished goods available for sale.

Standard Costs

Predetermined costs used for product costing, budgeting, and measuring performance, usually reflecting ideal expenses under normal conditions.

Work in Process

Goods in various stages of production within a factory, not yet completed but also not raw materials.

Fixed Manufacturing Overhead

The costs associated with production that do not change with the level of output, such as depreciation of equipment and salary of the factory manager.