An Analyst Using the Inventory Turnover Ratio to Calculate Future

question 31

Multiple Choice

An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem that:

• A) the method reduces the potential understatement inherent in average balances.
• B) the method can introduce artificial volatility in ending balances.
• C) the method results in understating inventory each year.
• D) the method results in overstating inventory each year.

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Definitions:

Railway Labor Act

A U.S. federal law that governs labor relations in the railroad and airline industries, primarily focusing on dispute resolution.

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