Multiple Choice
Which of the following best describes the inventory turnover ratio at a Frito-Lay plant if the cost of goods sold for the year is \$1,200,000 and the average inventory is \$200,000?
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5. Inventory
Inventory Errors
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Inventory record accuracy would be decreased by which of the following?
A
Performing regular physical inventory counts
B
Timely recording of all inventory purchases
C
Implementing a perpetual inventory system
D
Failure to record inventory shrinkage
Verified step by step guidance1
Understand the concept of inventory record accuracy: Inventory record accuracy refers to the degree to which the recorded inventory matches the actual physical inventory. Accurate records are essential for effective inventory management and financial reporting.
Analyze the options provided: Each option represents a practice or system that can impact inventory record accuracy. Evaluate whether each option would increase or decrease accuracy.
Option 1 - Performing regular physical inventory counts: Regular physical counts help identify discrepancies between recorded and actual inventory, improving accuracy. This option would increase inventory record accuracy.
Option 2 - Timely recording of all inventory purchases: Recording purchases promptly ensures that inventory records reflect the most current information, enhancing accuracy. This option would also increase inventory record accuracy.
Option 3 - Failure to record inventory shrinkage: Inventory shrinkage refers to losses due to theft, damage, or errors. If shrinkage is not recorded, the inventory records will not match the actual inventory, decreasing accuracy. This is the correct answer as it negatively impacts inventory record accuracy.
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