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Question
Average Inventory ₹ 60,000; Inventory Turnover Ratio 5 Times; Revenue from Operations 40% above cost. Calculate Gross Profit Ratio.
Numerical
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Solution
Inventory Turnover Ratio = `"Cost of Revenue from Operations"/"Average Inventory"`
5 = `"Cost of Revenue from Operations"/(₹ 60,000)`
Cost of Revenue from Operations = ₹ 60,000 × 5
= ₹ 3,00,000
Revenue from Operations = Cost of Revenue from Operations + 40% of Cost of Revenue from Operations
= ₹ 3,00,000 + `40/100 xx ₹ 3,00,000`
= ₹ 3,00,000 + ₹ 1,20,000
= ₹ 4,20,000
Gross Profit = Revenue from Operations − Cost of Revenue from Operations
= ₹ 4,20,000 − ₹ 3,00,000
= ₹ 1,20,000
Gross Profit Ratio = `"Gross Profit"/"Revenue from Operations" xx 100`
= `(₹ 1,20,000)/(₹ 4,20,000) xx 100`
= 28.57%
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