Question

Average Inventory ₹ 60,000; Inventory Turnover Ratio 8; Gross Profit 20% on revenue from operations; what will be Gross Profit?

Options

• ₹ 1,20,000

• ₹ 96,000

• ₹ 80,000

• ₹ 15,000

Answer 1

₹ 1,20,000

Explanation:

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

8 = `("Cost of Revenue from Operations​")/(60,000)`

Cost of Revenue from Operations​ = 60,000 × 8

= ₹ 4,80,000

Let the Revenue from Operations be x.

Gross Profit 20% on revenue from operations

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

4,80,000 = `x  - 20/100 xx x`

4,80,000 = `80/100 x`

`(4,80,000 xx 100)/80` = `x`

Revenue from Operations `x` = ₹ 6,00,000

Gross Profit = 20% on revenue from operations

= `20/100 xx 6,00,000`

= ₹ 1,20,000