Question

	₹
Cost of Revenue from Operations	12,00,000
Inventory Turnover Ratio	4 times

If opening inventory was one-third of closing inventory, the closing inventory will be:

Options

• ₹ 2,25,000

• ₹ 4,50,000

• ₹ 4,00,000

• ₹ 1,50,000

Answer 1

₹ 4,50,000

Explanation:

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

4 = `(12,00,000)/"Average Inventory"`

Average Inventory = `(12,00,000)/4`

= ₹ 3,00,000

Let the Closing Inventory be `x`

Opening Inventory = `1/3 x`

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

3,00,000 = `(1/3 x + x)/2`

3,00,000 = `4/6 x`

3,00,000 = `2/3 x`

`(3,00,000 xx 3)/2` = `x`

Closing Inventory `(x)` = ₹ 4,50,000