Some Analysts Calculate the Inventory Turnover Ratio by Dividing Sales

question 95

Multiple Choice

Some analysts calculate the inventory turnover ratio by dividing sales, rather than cost of goods sold, by the average inventory. Which of the following regarding the inventory turnover ratio is/are not true?

• A)Using sales in the numerator, will lead to incorrect measures of the inventory turnover ratio for calculating the average number of days that inventory is on hand until sale.
• B)As long as the ratio of selling price to cost of goods sold remains relatively constant, either measure will identify changes in the trend of the inventory turnover ratio.
• C)Using sales in the numerator, will lead to correct measures of the inventory turnover ratio for calculating the average number of days that inventory is on hand until sale.
• D)Choices a and b.
• E)None of the above.

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Definitions:

Self-Actualization

The realization or fulfillment of one's talents and potentialities, considered as a drive or need present in everyone, the highest level of Maslow's hierarchy of needs.

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Internal motivations that propel individuals to act in certain ways, often related to basic physiological needs or desires.

Physiological Drives

Basic, instinctual bodily needs that motivate behavior, such as hunger and thirst.

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Experiencing a prolonged lack or denial of something considered to be a necessity.