When a company's days of inventory on hand are increasing, this might indicate that: O The company is overstating inventory to reduce profits. O The company is expanding. O The company's inventory is obsolete.

When a company's days of inventory on hand are increasing, this might indicate that: O The company is overstating inventory to reduce profits. O The company is expanding. O The company's inventory is obsolete.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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When a company's days of inventory on hand are increasing, this might indicate that:
O The company is overstating inventory to reduce profits.
O The company is expanding.
O The company's inventory is obsolete.

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Retailers need merchandise to make sales. In fact, a retailer’s inventory is its biggest asset. Not stocking enough merchandise can result in lost sales, but carrying too much inventory increases costs and lowers margins. Both circumstances reduce profits. One measure of a reseller’s inventory management effectiveness is its stockturn rate (also called inventory turnover rate for manufacturers). The key to success in retailing is realizing a large volume of sales on as little inventory as possible while maintaining enough stock to meet customer demands. Refer to Appendix 2: Marketing by the Numbers, and determine the stockturn rate of a retailer carrying an average inventory at cost of $350,000, with a cost of goods sold of $800,000. If this company’s stockturn rate was 3.5 last year, is the stockturn rate calculated above better or worse? Explain.
Inventory Costing Method. In the period of inflation, businesses will choose to use LIFO, whereas, during the deflation period, they will pick FIFO instead if they want to have the lowest income tax. Why is that?
View Policies Current Attempt in Progress Very high turnovers O are always the goal of management. O may create stockouts O are a measurement of profitability. O are unaffected by inventory writedowns.
Retailers need merchandise to make sales. In fact, a retailer’s inventory is its biggest asset. Not stocking enough merchandise can result in lost sales, but carrying too much inventory increases costs and lowers margins. Both circumstances reduce profits. One measure of a reseller’s inventory management effectiveness is its stockturn rate (also called inventory turnover rate for manufacturers). The key to success in retailing is realizing a large volume of sales on as little inventory as possible while maintaining enough stock to meet customer demands. Determine the stockturn rate of a retailer carrying an average inventory at cost of $850,000, with a cost of goods sold of $1,800,000.
What is the main criticism of LIFO? A. It presents a balance sheet figure that is out-of-date. B. It artificially creates a higher income. C. It utilizes a unit cost that has no evidence of existence. D. It is often complicated to implement, especially if inventory costs change frequently.
Companies can use various methods to determine the cost of inventory, including FIFO, LIFO, and average cost. In a period in which the cost of inventory is rising, which of the following statements is true? The LIFO method will result in the lowest income tax expense. The LIFO method will result in the highest inventory balance at year-end. The average cost method will result in the highest net income. The LIFO method will result in the lowest cost of goods sold. The average cost method will result in the lowest inventory balance at year-end. The average cost method will result in the highest inventory balance at year-end. The FIFO method will result in the lowest net income. None of the listed choices are correct.
A firm that uses LIFO accounting for inventory in times of rising investory costs will always report lower profit margins than if it used FIFO. Is this correct?
U Company and V Company are identical in all the expects, except the fact the U Company follows FIFO and V Company follows LIFO. If the inventory costs are rising, U Company's inventory turnover ratio and gross profit compared to V Company will be: Lower Higher Lower Lower Higher Higher Higher Lower
Let's say that a company fails to sell all that it manufactures, is it true that the inventory is a liability on its balance sheet?
answer these question in just two sentences. a..“If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase.” If it is possible give reason in two sentences. b. In general, it's better to have a low inventory turnover ratio than a high one, as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock. If it is false give reason in two sentences. c. “It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.” If you are not agreed with this statement give justification in two sentences.
A company that is under extreme pressure to meet its earnings goals would be more likely to use the FIFO method of inventory costing. less likely to report its pro forma income in its annual report. more likely to engage in channel stuffing. O less likely to use the LIFO method of inventory costing.

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