Question

Inventory Turnover Ratio 5 times; Cost of Revenue from Operations (Cost of Goods Sold) ₹ 18,90,000. Calculate Opening Inventory and Closing Inventory if Inventory at the end is 2.5 times more than that in the beginning.

Answer 1

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

`5 = 1890000/"Average Inventory"`

Average Inventory = Rs. 3,78,000.

Let Opening Inventory = x

Closing Inventory = 2.5x + x = 3.5 x

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

`378000 = (x + 3.5x)/2`

or, 4.5x = 756000

or, x = 168000

Opening Inventory = x = Rs. 1,68,000

Closing Inventory = 3.5 x = 3.5 × 1,68,000 = Rs. 5,88,000.