Question

Calculate Inventory Turnover Ratio:

Annual Revenue from operations = Rs. 2,00,000

Gross Profit = 20% on cost of Revenue from operations

Inventory in the beginning = Rs. 38,500

Inventory at the end = Rs. 41,500

Answer 1

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

Average Inventory = `((38500 + 41500))/2`

Average Inventory = `80,000/2`

Average Inventory = Rs. 40,000

Let Cost of Revenue from operations be x.

Gross Profit = 20% of x = 0.20x

Revenue from operations = Cost + Gross Profit

2,00,000 = x + 0.20x

2,00,000 = 1.20x

x = `(2,00,000)/1.20`

Cost of Revenue from operations = Rs. 1,66,666.67

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

Inventory Turnover Ratio = `1,66,666.67/40,000`

Inventory Turnover Ratio = 4.17 times