Question

1. A higher inventory turnover ratio (Cost of goods sold/Average inventory) suggests:

		management is reducing the amount of inventory on hand, relative to cost of goods sold.
		management is increasing the amount of inventory on hand, relative to cost of goods sold.
		management is not monitoring the amount inventory on hand, relative to the cost of goods sold.
		none of the above.

2 . All of the following are advantages of a perpetual inventory systems except:

		Ability to produce interim financial statements because cost of goods sold may be determined at any time.
		Ability to determine inventory quantities at any time and check whether the amount actually on hand agrees with the inventory records.
		Ability to obtain higher sales prices for the inventory.
		Better control over inventories

Answer 1

Solution:

1) Management is increasing the amount of inventory on hand , relative to cost of goods sold.

When turn over ratio rises, It clearly states that there is an increased demand for the product. In such an occassion the management is forced to increase the amount of inventory. Rest of the options are not related with high inventory turn over ratio

2) Ability to obtain higher sales price for the product.

In perpectual inventory system the quantity and availability is updated on a continous basis. So there by determime the inventory quantities and cost of sold but it is not possible to sell at a higher price. Rest of the options are the advantages of the perpectual inventory system.