Question

Opening Inventory ₹80,000; Purchases ₹4,30,900; Direct Expenses ₹4,000; Closing Inventory ₹1,60,000; Administrative Expenses ₹21,100; Selling and Distribution Expenses ₹40,000; Revenue from Operations, i.e., Net Sales ₹10,00,000. Calculate Inventory Turnover Ratio; Gross Profit Ratio; and Opening Ratio.

Answer 1

(i)

Opening Inventory = 80,000

Closing Inventory = 1,60,000

Cost of Goods Sold = Opening Inventory + Purchases + Direct Expenses − Closing Inventory

= 80,000 + 4,30,900 + 4,000 − 1,60,000

= 3,54,900

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

`= (80000 + 160000)/2 = 120000`

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

`= 354900/120000 =` = 2.96 Times

(ii)

Sales = 10,00,000

Gross Profit = Net Sales − Cost of Goods Sold

= 10,00,000 − 3,54,900 = 6,45,100

Gross Profit Ratio = `"Gross Profit"/"Net Sales" xx 100`

`= 645100 / 1000000 xx 100 = 64.51 %`

(iii)

Operating Expenses = Administration Expenses + Selling and Distribution Expenses

= 21,100 + 40,000 = 61,100

Operating Cost = Cost of Goods Sold + Operating Expenses

= 354900 + 61100 = 416000

Operating Ratio = `"Operating Cost"/"Net Sales" xx 100`

`= 416000/1000000 x 100 = 41.6 %`