Question

Calculate Inventory Turnover Ratio if:

Inventory in the beginning is Rs. 76,250, Inventory at the end is Rs. 98,500, Gross Revenue from Operations is Rs. 5,20,000, Sales Return is Rs. 20,000, Purchases is Rs. 3,22,250.

Answer 1

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

`"Cost of revenue from Operations" = "Inventory in the begining + Purchases - Inventory at the end"`

= 76,250 + 3,22,250 − 98,500

= 3,00,000

`"Average Inventory" = ("Inventory in the begining" + "Inventory at the end")/2`

= `(76,250 + 98,500)/2`

= `(1,74,750)/2`

= 87,375

`"Inventory turnover Ratio" = "3,00,000"/"87,375" = 3.43  "times"`