Question

If a company's sales revenue and cost of goods sold increase by a higher percentage than its inventory balances, inventory turnover will:

A) Increase or decrease depending on whether the inventory is purchased on account or for cash.
B) Remain the same.
C) Increase.
D) Decrease.

Answer 1

The correct option is D. If a company's sales revenue and cost of goods sold increase by a higher percentage than its inventory balances, inventory turnover will decrease.

Step-by-step explanation:

If a company's sales revenue and cost of goods sold increase by a higher percentage than its inventory balances, inventory turnover will decrease.

Inventory turnover is a measure of how quickly a company sells its inventory and is calculated by dividing the cost of goods sold by the average inventory balance. If both sales revenue and cost of goods sold increase at a higher percentage than inventory balances, it means that the company is selling its inventory at a slower rate, resulting in a decrease in inventory turnover.