Question

Calculate the amount of gross profit:

Average inventory = Rs. 80,000

Inventory turnover ratio = 6 times

Selling price = 25% above cost

Answer 1

Inventory Turnover Ratio = `"Cost of Revenue from Operations"/"Average Inventory"`

6 = `"Cost of Revenue from Operations"/(80,000)`

Cost of Revenue from Operations = 6 × 80,000

= Rs. 4,80,000

Gross Profit = 25% of Cost of Revenue from Operations

Gross Profit = `4,80,000 xx 25/100`

= Rs. 1,20,000