Question

Calculate Inventory Turnover Ratio from the following:

Particulars	₹
Opening Inventory	58,00,000
Closing Inventory	62,000
Revenue from Operations, i.e., Net Sales	6,40,000
Gross Profit Ratio 25%.

Answer 1

Calculation of Gross Profit:

\[\text{Gross Profit} = 25\% \text{ of Revenue from Operations}\]

$$\text{Gross Profit} = ₹ 6,40,000 \times \frac{25}{100}$$

$${\text{Gross Profit} = ₹ 1,60,000}$$

Calculation of Cost of Revenue from Operations:

$$\text{Cost of Revenue from Operations} = \text{Revenue from Operations} - \text{Gross Profit}$$

$$\text{Cost of Revenue from Operations} = ₹ 6,40,000 - ₹ 1,60,000$$

$${\text{Cost of Revenue from Operations} = ₹ 4,80,000}$$

Calculation of Average Inventory:

$$\text{Average Inventory} = \frac{\text{Opening Inventory} + \text{Closing Inventory}}{2}$$

$$\text{Average Inventory} = \frac{58,000 + 62,000}{2}$$

$$\text{Average Inventory} = \frac{1,20,000}{2}$$

$${\text{Average Inventory} = ₹ 60,000}$$

Calculation of Inventory Turnover Ratio:

$$\text{Inventory Turnover Ratio} = \frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$$

$$\text{Inventory Turnover Ratio} = \frac{4,80,000}{60,000} = 8$$

Inventory Turnover Ratio = 8 Times