Question

Compute the Inventory Turnover Ratio from the following information:

	Rs.
Net Revenue from Operations	2,00,000
Gross Profit	50,000
Inventory at the end	60,000
Excess of inventory at the end over inventory in the beginning	20,000

Answer 1

`"Inventory Turnover Ratio" = "Cost of goods sold"/"Average Inventory"`

Cost of goods sold = Net Sales − Gross Profit

                                  = 2,00,000 − 50,000

                                 = 1,50,000

Inventory in the beginning = Inventory at the end − 20,000

                                             = 60,000 − 20,000

                                             = 40,000

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

                                  = `(40,000 + 60,000)/2`

                                  = 50,000

`"Inventory turnover ratio" = "1,50,000"/"50,000"`

= 3 times