Question

Calculate the Inventory Turnover Ratio if:

Inventory in the beginning is Rs. 76,250, Inventory at the end is Rs. 98,500, Sales is Rs. 5,20,000, Sales Return is Rs. 20,000, Purchases is Rs. 3,22,250.

Answer 1

`"Inventory Turnover ratio" = "Cost of revenue from operations"/"Average Inventory"`

Cost of revenue from Operations = Inventory at the beginning + Purchases − Inventory at the end

= 76,250 + 3,22,250 − 98,500

= 3,00,000

`"Average Inventory" = ("Inventory in the begining" + "Inventory at the end")/2`

= `(76,250 + 98,500)/2`

= `(1,74,750)/2`

= 87,375

`"Inventory turnover Ratio" = "3,00,000"/"87,375"`

= 3.43 times