Consider the following two independent situations:
1. A manufacturer reported an inventory turnover ratio of 8.6 during 2013. During 2014, management introduced a new inventory control system that was expected to reduce average inventory levels by 25 percent without affecting sales volume. Given these circumstances, would you expect the inventory turnover ratio to increase or decrease during 2014? Explain.
2. Lexis Corporation is considering changing its inventory method from FIFO to weighted average and wants to determine the impact on selected accounting ratios. In general, what would be the impact of this change on the following ratios, assuming that prices have been increasing over time: net profit margin ratio, fixed asset turnover ratio, current ratio, and quick ratio?

  • CreatedAugust 04, 2015
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