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A Trading Firm’S Average Inventory is Rs 20,000 (Cost). If the Inventory Turnover Ratio is 8 Times and the Firm Sells Goods at a Profit of 20% on Sale, Ascertain the Profit of the Firm. - Accountancy

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ConceptTypes of Ratios

Question

A trading firm’s average inventory is Rs 20,000 (cost). If the inventory turnover ratio is 8 times and the firm sells goods at a profit of 20% on sale, ascertain the profit of the firm.

Solution

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

`"or". 8 = "Cost of revenue from operations"/"20,000"`

`"or", "Cost of revenue from operations" = "20,000"xx" 8`

`"or", "Cost of revenue from operations" = 1,60,000`

Let Sale Price be Rs 100

Then Profit is Rs 20

Hence, the Cost of Revenue from Operations = Rs 100 − Rs 20 = Rs 80

If the Cost of Revenue from Operations is Rs 80, then Revenue from Operations = 100

If the Cost of Revenue from Operations is Rs 1, then Revenue from Operations =`100/8`

`"If the cost of revenue from operations is" 1,60,000 "then".`

`"Revenue from operations" = 100/80 xx 1,60,000 = 2,00,00`

`"Profit" = "Net Revenue from Opeartions"  -" Cost of revenue from operations"`

             = `2,00,000 - 1,60,000`

             = `40,000`

  Is there an error in this question or solution?

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Solution A Trading Firm’S Average Inventory is Rs 20,000 (Cost). If the Inventory Turnover Ratio is 8 Times and the Firm Sells Goods at a Profit of 20% on Sale, Ascertain the Profit of the Firm. Concept: Types of Ratios.
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