Question

Calculate Inventory Turnover Ratio from the following information:

Opening Inventory is ₹50,000; Purchases ₹3,90,000; Revenue from Operations, i.e., Net Sales ₹6,00,000; Gross Profit Ratio 30%.

Answer 1

Cost of Goods Sold = Net Sales – Gross Profit
= Rs 6,00,000 – 30% of Rs 6,00,000
= Rs 6,00,000 – Rs 1,80,000 = Rs 4,20,000

Cost of Goods Sold = Opening Inventory + Purchases – Closing Inventory
Rs 4,20,000  = Rs 50,000 + Rs 3,90,000 – Closing Inventory
Closing Inventory =  Rs 50,000 + Rs 3,90,000 – Rs 4,20,000
= Rs 20,000  

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

`= (50000 + 20000)/2` = Rs 35000

Stock turnover Ratio =`"Cost of goods Sold"/"Average Stock" = 420000/35000` = 12 times