Exam IIA-CIA-Part3 All QuestionsBrowse all questions from this exam
Question 192

An organization has a declining inventory turnover but an increasing gross margin rate. Which of the following statements can best explain this situation?

    Correct Answer: D

    A declining inventory turnover indicates that the organization is holding onto inventory longer or selling goods more slowly, which could be due to overstated inventory levels. An increasing gross margin rate suggests that while they are earning more per unit sold, the overall sales volume might not be as high. Overstated inventory would inflate the value of inventory on hand, causing a lower cost of goods sold and thus increasing gross margin. This combination of factors can best be explained by option D.

Discussion
ElvinOption: D

D for me is correct

ElvinOption: D

Inventory turnover = COGS/Average Inventory. Turnover declines when the denominator or ave inventory increases. From the choices, only D will cause the turnover to decline.

KonradKOption: A

Shouldn't it be A?