A company that assures product quality often sees which impact on its financial statements?

• A. Higher cost of goods sold due to increased returns
• B. Decreased sales revenue from dissatisfied customers
• C. Increased write-downs of inventory
• D. Lower inventory obsolescence expenses

Answer: (D)

Verified step by step guidance

1. Understand the concept of inventory obsolescence: Inventory obsolescence occurs when inventory becomes outdated, damaged, or unsellable, leading to write-downs or expenses on the financial statements.
2. Analyze the impact of product quality assurance: When a company assures product quality, it reduces the likelihood of inventory becoming obsolete because high-quality products are less likely to be returned or unsellable.
3. Relate product quality assurance to financial statements: Lower inventory obsolescence expenses mean fewer write-downs of inventory, which positively impacts the company's financial health by reducing expenses.
4. Compare the given options: Higher cost of goods sold, decreased sales revenue, and increased write-downs of inventory are negative impacts, whereas lower inventory obsolescence expenses are a positive outcome of product quality assurance.
5. Conclude the reasoning: The correct answer is 'Lower inventory obsolescence expenses' because product quality assurance directly reduces the risk of inventory becoming obsolete, improving the company's financial performance.