Question

Determine the amount of Revenue from Operations from the following particulars:

Opening Inventory	₹ 40,000
Inventory Turnover Ratio	6 times

Gross Profit 20% of Revenue from Operations (Sales)

You are informed that closing inventory is two times in comparison to opening inventory.

Answer 1

Opening Inventory = ₹ 40,000

Closing Inventory = ₹ 40,000 × 2

= ₹ 80,000

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

= `(₹ 40,000 + ₹ 80,000)/2`

= `(₹ 1,20,000)/2`

= ₹ 60,000

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

6 = `"Cost of Revenue from Operations"/(₹ 60,000)`

Cost of Revenue from Operations = ₹ 60,000 × 6

= ₹ 3,60,000

Let the Revenue from Operations be x.

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

`20/100 xx x` = x − ₹ 3,60,000

`(20x)/100 - x` = ₹ 3,60,000

`(80x)/100` = ₹ 3,60,000

x = `(₹ 3,60,000 xx100)/80`

x (Revenue from Operations) = ₹ 4,50,000

Revenue from Operations = ₹ 4,50,000