Question

Which of the following statements are true? (check all that apply)

1) an increased inventory balance is desirable if the resulting inventory turnover ratio is lower
2) an increase inventory balance is desirable if management is building up stock in anticipation of higher sales.
3) an increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory

Answer 1

An increased inventory balance is not desirable with a lower inventory turnover ratio. However, building up inventory in anticipation of higher sales and considering an increased balance as undesirable when due to unsaleable stock are both true statements.

Step-by-step explanation:

The statement about inventory balance and its relation to the inventory turnover ratio and sales anticipation is related to inventory management in business. Here's the analysis of each statement:

• An increased inventory balance is generally not desirable if the resulting inventory turnover ratio is lower, because this can indicate a less efficient use of inventory where goods are not being sold quickly enough.
• An increase in inventory balance is often desirable if management is building up stock in anticipation of higher sales. This strategic decision is based on market forecasts and the expectation that the inventory will be sold through increased demand.
• An increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory. This situation usually reflects overproduction, obsolete stock, or poor demand forecasting, leading to increased storage costs and reduced cash flow.

Therefore, the second and third statements are true, whereas the first statement is generally false.