Question

₹ 3,00,000 is the Cost of Revenue from Operations (Cost of Goods Sold). Inventory Turnover Ratio 8 times; Inventory in the beginning is 2 times more than the inventory at the end. Calculate value of Opening and Closing Inventories.

Answer 1

Inventory Turnover Ratio = `"Cost of goods Sold"/"Average Inventory"`

8 = `(₹ 3,00,000)/"Average Inventory"`

Average Inventory = `(₹ 3,00,000)/8`

Average Inventory = ₹ 37,500

Let Closing Inventory = x

Opening Inventory = 2x + x = 3x

Average Inventory = `("Opening Inventory" + "Closing Inventory")/2` 

`₹ 37,500 = (3x + x)/2`

4x = ₹ 75,000

x = `(₹ 75,000)/4`

x = ₹ 18,750

Closing Inventory = x = ₹ 18,750

Opening Inventory = 3x

= 3 × ₹ 18,750

= ₹ 56,250