An increasing balance in the Inventory account accompanied by an increase in the inventory turnover ratio would imply that the inventory build-up is occurring because:
A)inventory is not selling as fast as anticipated.
B)the company is expecting to sell more inventory in the future.
C)inventory is selling,but it is taking longer to collect payment from customers.
D)the economy is slowing down.

Question

Quizplus · Accepted Answer

The inventory turnover is calculated by dividing cost of goods sold by average inventory.A higher inventory turnover ratio indicates that inventory moves more quickly from purchase to sale.If inventory levels are rising and the inventory turnover is increasing,a company might be increasing the amount of inventory on hand in order to have sufficient levels to satisfy an expected increase in demand.

An Increasing Balance in the Inventory Account Accompanied by an Increase