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Discussion Question:

Inventory turnover ratio measures the number of times an inventory item is sold or used in during a given time period. Generally, there is no norm for this ratio and it is appreciated to be compared against industry average. A high turnover ratio shows that company is turning its inventory into cash quickly, resulting a lower risk of having obsolete inventory and vice versa. 

Consider a case of Beta Corporation which is one of the leading rubber manufacturers. The company, enjoying rapid growth in the industry, is experiencing an exceptionally high inventory turnover ratio. This may signal some negative indications.

 

You are required to briefly discuss at least four possible negative indications with proper rationale.

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This Graded Discussion Board will cover lesson # 9.

Please upload acc 501 gdb solution
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Acc501 gdb

  • Negative indication is a signal of inefficiency, since inventory usually has a rate of return of zero.
  • It also implies either poor sales or excess inventory.
  • A low turnover rate can indicate poor liquidity, possible overstocking, and obsolescence, but it may also reflect a planned inventory buildup in the case of material shortages or in anticipation of rapidly rising prices.

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The GDB is not about low turnover ratio, it's about high turnover ratio, which shows efficiency of Managment. Means The Company sell out the Inventory quickly. which is good sign.
All we have to talk about How this situation could be negative?
Which is as per my knowledge,
Since company is selling quickly, it's could also a sign that the product in the market is over delivered than required.
The price could have been decrease or discounted
If there would be returns received the cost would go up.
Further think of negative indications. If someone got a better idea please share

1)poor management of inventory
2)bad buying management
3)unexpected strong sales
4)customers consideration
elaborate and explain your self.

Loss of economy of scale

High turnover also can be misleading, however. Your high ratio may result because you buy too little inventory to keep up with customer demands. Buying smaller inventory amounts regularly means you pay higher price points. This inflates your cost of goods sold, which makes for a higher turnover ratio.

Loss or Damage

Related to the high costs of high inventory, some inventory can also go bad after a certain amount of time and go to waste. When retailers buy excess inventory of perishable food items, for instance, they may have to throw out inventory that spoils or becomes rotten. When you carry high inventory, you also have greater exposure to lost or damaged product. Thieves have more products to choose from and you have greater potential for product to turn up missing or broken when you count inventory.

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