42. Question ID: CIA 595 1.50 (Topic: 2D. Apply Analytical Review Techniques)
- This topic has 4 replies, 2 voices, and was last updated 3 months, 2 weeks ago by Denny Benjamin.
The suggested answer to the question “Which of the following would not explain the decrease in cost of goods sold as a percentage of sales ratio? The division” is :
B. Liquidated inventory in conjunction with a plan to bring its current ratio more in line with the industry average.
The explanation for the answer states “This is not a potential explanation because (1) there has been an increase in inventory, and (2) a liquidation would have resulted in a write-down of the costs of inventory which would have caused the ratio to move the other way.”
Can you explain which ratio shows an increase in inventory? Is it the quick ratio?
Doesn’t the lower days in inventory mean there is more efficient management of inventory?
Additionally, what is the reason for the decrease in net income? Is it due to factors not mentioned in the table? Couldn’t lower COGS lead to an increase in net income?
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