Question

Compute Inventory Turnover Ratio from the following:

	₹
Cost of Revenue from Operations (Cost of Goods Sold)	5,60,000
Purchases	4,40,000
Wages	1,30,000
Carriage Inwards	15,000
Opening Inventory	75,000

Answer 1

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

Cost of Revenue from Operations = Opening Inventory + Purchases + Direct Expenses − Closing Inventory

₹ 5,60,000 = Opening Inventory + Purchases + (Wages + Carriage Inwards) − Closing Inventory

₹ 5,60,000 = ₹ 75,000 + ₹ 4,40,000 + ₹ 1,30,000 + ₹ 15,000 − Closing Inventory

₹ 5,60,000 = ₹ 6,60,000 − Closing Inventory

Closing Inventory = ₹ 6,60,000 − ₹ 5,60,000

= ₹ 1,00,000

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

= `(₹ 75,000 + ₹ 1,00,000)/2`

= `(₹ 1,75,000)/2`

= ₹ 87,500

Inventory Turnover Ratio = `(₹ 5,60,000)/(₹ 87,500)`

= 6.4 times