XDR corp is expecting a 10% increase in sales next year. XDR has an inventory ba

Question

XDR corp is expecting a 10% increase in sales next year. XDR has an inventory balance of 1 million and uses the percent of sales method. Which of the following could explain why the inventory forecast of 1.1 million may be too high?

A)The company is going to change its depreciation method in the coming year
B)The current inventory balance of 1 million is lower than usual because of a one time fire sale
C)The growth in sales could be as high as 15%
D)A fixed amount of inventory is required to do business, so inventory doesn't increase proportionally with sales

Explanation / Answer

B)The current inventory balance of 1 million is lower than usual because of a one time fire sale

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