Question

A trader carries an average inventory of ₹ 40,000. His inventory turnover Ratio is 8 times. If he sells goods at a profit of 20% on Revenue from Operations, find out his profit.

Answer 1

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

8 = `"Cost of Revenue from Operations"/(₹ 40,000)`

Cost of Revenue from Operations = ₹ 40,000 × 8

= ₹ 3,20,000

Let the Revenue from Operation be x.

Gross Profit = Revenue from Operation − Cost of Revenue from Operations

`20/100 x = x - 3,20,000`

`x - 20/100 x` = ₹ 3,20,000

`80/100 x` = ₹ 3,20,000

`x = (₹ 3,20,000 xx 100)/80`

Revenue from Operation `(x)` = ₹ 4,00,000

Gross Profit = Revenue from Operation − Cost of Revenue from Operations

= ₹ 4,00,000 − ₹ 3,20,000

= ₹ 80,000