Inventory Turnover Decreases with Slower Sales Relative to Inventory

Steps:

• Inventory turnover ratio = Cost of Goods Sold (or Sales) / Average Inventory.
• Ratio fell from 10 to 8, indicating slower inventory movement.
• This occurs if sales decline while inventory stays constant or rises.
• Fall in demand directly lowers sales, reducing the ratio.

Why A is correct:

• Fall in demand decreases sales volume, lowering turnover as Turnover = Sales / Average Inventory.

Why the others are wrong:

• B: Higher sales increases the numerator, raising turnover.
• C: Lower inventory levels decreases the denominator, increasing turnover.
• D: Lower selling price may boost sales volume, potentially raising turnover.

Final answer: A