Question

₹ 6,30,000 is the cost of Revenue from Operations of a firm for the year ending 31st March, 2023. If inventory turnover ratio is 7 times, calculate inventory at the end of the year. Inventory at the end is twice than that in the beginning.

Answer 1

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

7 = `(₹ 6,30,000)/"Average Inventory"`

Average Inventory = `(₹ 6,30,000)/7`

= ₹ 90,000

Let the Opening Inventory be x.

Closing Inventory is 2x.

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

₹ 90,000 = `(x + 2x)/2`

₹ 90,000 × 2 = 3x

3x = ₹ 1,80,000

x = `(₹ 1,80,000)/3`

Opening Inventory (x) = ₹ 60,000

Closing Inventory = ₹ 60,000 × 2

= ₹ 1,20,000