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Question
From the following data, calculate ‘Inventory Turnover Ratio’ when gross profit ratio is given 20%:
| ₹ | |
| Cash Sales | 1,50,000 |
| Credit Sales | 2,50,000 |
| Return Inward | 25,000 |
| Opening Inventory | 25,000 |
| Closing Inventory | 35,000 |
Numerical
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Solution
Inventory Turnover Ratio = `"Cost of Revenue from Operations"/"Average Inventory"`
Total Sales = Cash Sales + Credit Sales
= ₹ 1,50,000 + ₹ 2,50,000
= ₹ 4,00,000
Net Sales = Total Sales − Return Inward
= ₹ 4,00,000 − ₹ 25,000
= ₹ 3,75,000
Gross Profit = `20/100 xx 3,75,000`
= ₹ 75,000
Cost of Revenue from Operations = Net Sales − Gross Profit
= ₹ 3,75,000 − ₹ 75,000
= ₹ 3,00,000
Average Inventory = `("Opening Inventory + Closing Inventory")/2`
= `(₹ 25,000 + ₹ 35,000)/2`
= `(₹ 60,000)/2`
= ₹ 30,000
Inventory Turnover Ratio = `(₹ 3,00,000)/(₹ 30,000)`
= 10 times
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