Final answer:
In level production with seasonal sales, when sales decline, inventory will increase. This is because the firm continues to produce at a constant rate despite sales variations. Accounts receivable are not necessarily affected by this particular production strategy.
Step-by-step explanation:
The question pertains to the effects of level production in a firm with seasonal sales on inventory levels and accounts receivable. In level production, a company produces goods at a constant rate regardless of seasonal sales fluctuations. When sales decline, inventory does not immediately adjust to the lower sales volume because the production rate remains constant. This leads to an increase in inventory as products are still being produced but not being sold at the same rate.Contrary to inventory, accounts receivable would decrease or remain constant as sales decline because there are fewer sales on credit. Therefore, the main answer here would be A. as sales decline, inventory will increase. This occurs independently from accounts receivable, which reflect the amounts of money owed to the firm by its customers who purchased goods on credit.In conclusion, level production leads to an accumulation of inventory during periods of reduced sales, but does not inherently affect the level of accounts receivable, which is tied to credit sales and customer payments.