An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem 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, making it difficult to predict future levels of inventory with certainty. It does not necessarily result in understating or overstating inventory each year.

An Analyst Using the Inventory Turnover Ratio to Calculate Future