Question

If the inventory/sales ratio is 1.5 when sales are $200, but that the ratio declines to 1 when sales climb to $400. What is the underlying asset feature?

____

Assets exhibiting economies of scale

Assets exhibiting diseconomies of scale

Assets exhibiting constant economies of scale

Assets are in large, discrete units

Answer 1

a higher inventory turnover ratio is good, because it depicts the fact that the inventories are getting converted into cash quickly and the hold up of the inventory is low.

since earlier the inventory/sales was 1.5 , when sales was $200

inventory was 300. as the sales doubled, the inventory increased by less than proportionate increase to sales, the inventories increased by only $100. maybe with the increase in sales, the cost might not have been reduced due to some reason as a result the business seems to be investing less in the inventories as a result the growth in the inventories is less than proportionate. the firms advantage from economies of scale, which result in lower costs and increased profits. the replacement of inventories is high with the benefits from the economies of scale.

the correct option is option 2