An analyst using the inventory turnover ratio to calculate future levels of inventory may face the that:
A) the method reduces the potential understatement inherent in average balances.
B) the method can introduce artificial volatility in ending balances.
C) the method results in understating inventory each year.
D) the method results in overstating inventory each year.

Question

Quizplus · Accepted Answer

The inventory turnover ratio can introduce artificial volatility in ending balances, which may affect the accuracy of calculating future inventory levels. This can happen because the ratio only considers the cost of goods sold and average inventory balance for a period, which may not accurately reflect the changes in inventory levels throughout that period.

An Analyst Using the Inventory Turnover Ratio to Calculate Future