Question

Revenue from Operations ₹4,00,000; Gross Profit ₹1,00,000; Closing Inventory ₹1,20,000; Excess of Closing Inventory over Opening Inventory ₹40,000. Calculate Inventory Turnover Ratio.

Answer 1

Sales = 4,00,000

Gross Profit = 1,00,000

Cost of Goods Sold = Sales − Gross Profit

= 4,00,000 − 1,00,000 = 3,00,000

Let Opening Inventory = x

Closing Inventory = x + 40,000

1,20,000 = x + 40,000

x= 80,000

Opening Inventory = 80,000 

Average Inventory

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

`= (80000 + 120000)/2 = 100000`

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

`= 300000/100000` = 3 times