Question

From the following data, calculate Inventory Turnover Ratio:
Total Sales ₹5,00,000; Sales Return ₹50,000; Gross Profit ₹90,000; Closing Inventory ₹1,00,000; Excess of Closing Inventory over Opening Inventory ₹20,000.

Answer 1

Cost of Goods Sold = Net Sales (Sales – Sales Return) – Gross Profit
= Rs 5,00,000 – Rs 50,000 – Rs 90,000 = Rs 3,60,000
Closing Inventory = Rs 1,00,000
Closing Inventory is Rs 20,000 more than the Opening Inventory
Therefore, Opening Inventory = Rs 80,000 (Rs 1,00,000 – Rs 20,000) 

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

`= (80000 + 100000)/2` = Rs 90000

Stock turnover Ratio  =`"Cost of goods Sold"/"Average Stock"`

`= 360000/90000` = 4 times