An analytical review reveals that XYZ Company's cost of goods sold has increased by 75% over the last year. However, its sales revenues have only increased by 25% during the same period. This situation MOST LIKELY indicates which of the following?
A.
The company started recording warranty liabilities
B.
Inventory has been depleted by theft.
C.
There were many more sales returns this year than in the prior year.
D.
Sales were unusually poor this year compared to last year.
A 75% increase in cost of goods sold (COGS) with only a 25% increase in sales suggests that the company is losing inventory without a corresponding increase in revenue. This imbalance most likely points to:
• Inventory shrinkage, and
• A common cause of shrinkage is theft or misappropriation.
So, the inflated COGS may be reflecting inventory losses due to theft, not legitimate sales activity.
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_denw
1 week, 2 days ago