Question

₹ 1,50,000 is the cost of Revenue from Operations (Cost of Goods Sold), Inventory turnover 8 times; Inventory at the beginning is 1.5 times more than the inventory at the end. Calculate the values of Opening & Closing Inventory.

Answer 1

Inventory Turnover Ratio = `"Cost of Revenue from Operations"/"Average Inventory"`

8 = `(₹ 1,50,000)/"Average Inventory"`

Average Inventory = `(₹ 1,50,000)/(8)`

= ₹ 18,750

Let Closing Inventory = x

Opening Inventory = x + 1.5x

= 2.5x

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

₹ 18,750 = `(2.5x + x)/2`

₹ 18,750 × 2 = 3.5x

₹ 37,500 = 3.5x

`(₹ 37,500)/3.5`= x

x = ₹ 10,714.2

Closing Inventory = ₹ 10,714

Opening Inventory = 2.5 × ₹ 10714.2

= ₹ 26,785.7

= ₹ 26,786