Question

From the following information, determine Opening and Closing inventories:

Inventory Turnover Ratio 5 Times, Total sales ₹ 2,00,000, Gross Profit Ratio 25%. Closing Inventory is more by ₹ 4,000 than the Opening Inventory.

Answer 1

Sales = 2,00,000

Gross Profit = 25% on Sales

∴ Gross Profit =`200000 xx 25/100 = 50000`

Cost of Goods Sold = Total Sales − Gross Profit

= 2,00,000 − 50,000 = 1,50,000

Inventory Turnover Ratio=`"Cost of goods Sold"/"Average Inventory"`

`5 = 150000/"Average Inventory"`

Average Inventory = 30000

Let Opening Inventory = x

Closing Inventory = x + 4,000

Average Inventory

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

`30000 = (x + x + 4000)/2`

or, 60000 = 2x + 4000

or, x = 28000

Opening Inventory = x = Rs 28,000

Closing Inventory = x + 4,000 = 28,000 + 4,000 = Rs 32,000