Question

Inventory Turnover Ratio of company was 5 times. The firm had Revenue from operations of ₹ 5,00,000 and Gross Profit was 25% of Cost of Revenue from Operations. Determine the amount of Opening Inventory if Closing Inventory was ₹ 60,000.

विकल्प

• ₹ 80,000

• ₹ 60,000

• ₹ 1,00,000

• ₹ 50,000

Answer 1

₹ 1,00,000

Given:

Inventory Turnover Ratio (ITR) = 5 times

Revenue from Operations = ₹ 5,00,000

Gross Profit = 25% of Cost of Revenue from Operations.

Closing Inventory = ₹ 60,000

Let CRO = C

Gross Profit = 25% of C

Revenue = Cost + GP

5,00,000 = C + 0.25 C = 1.25 C

`C = (5,00,000)/1.25`

= 4,00,000

Apply Inventory Turnover Ratio formula,

`"ITR" = "Cost of Revenue"/"Average Inventory"`

`5 = (4,00,000)/"Average Inventory"`

Average Inventory = `(4,00,000)/5`

= 80,000

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

`80000 = ("Operating Inventory" + 60,000)/2`

1,60,000 = Opening Inventory + 60,000

Opening Inventory = 1,60,000 − 60,000

= 1,00,000