Question

₹2,00,000 is the Cost of Revenue from Operations (Cost of Goods Sold), during the year. If Inventory Turnover Ratio is 8 times, calculate inventories at the end of the year. Inventories at the end is 1.5 times that of in the beginning.

Answer 1

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

`8 = 200000/"Average Inventory"`

Average Inventory = Rs 25000

Let Opening Inventory = x

Closing Inventory = 1.5 × x = 1.5 x

Average Inventory

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

`25000 = (x + 1.5x)/2`

or, 2.5x = 50000

or, x = 20000

Opening Inventory = x = Rs 20,000

Closing Inventory = 1.5 x = 20,000 × 1.5 = Rs 30,000