Question

Calculate the Gross Profit Ratio (up to two decimal places) from the following information:

Particulars
Opening Inventory	₹ 80,000
Closing Inventory	₹ 1,00,000
Revenue from Operations	₹ 9,00,000
Inventory Turnover Ratio	8 times

Answer 1

Average Inventory = `(₹ 80,000 + ₹ 1,00,000)/2`

= ₹ 90,000

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

8 = `("Cost of Revenue from Operations")/(₹ 90,000)`

Cost of Revenue from Operations = 8 × ₹ 90,000

= ₹ 7,20,000

Gross Profit = Revenue from Operations − Cost of Revenue from Operations

= ₹ 9,00,000 − ₹ 7,20,000

= ₹ 1,80,000

Gross Profit Ratio = `("Gross Profit")/("Revenue from Operations") xx 100`

= `(₹ 1,80,000)/(₹ 9,00,000) xx 100`

= 20%