Question

From the given information calculate the inventory turnover ratio and inventory conversion period (in months) of Devi Ltd.

Particulars	Rs.
Revenue from operations	12,00,000
Inventory at the beginning of the year	1,70,000
Inventory at the end of the year	1,30,000
Purchase made during the year	6,90,000
Carriage inwards	20,000

Answer 1

Inventory Turnover Ratio = `"cost of revenue from operations"/"Average Inventory"`

Cost of revenue from operations = Purchase of stock + change in inventories of finished goods operations + Direct Expenses.

= Rs. 6,90,000

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

`= (1,70,000 + 1,30,000)/2`

= Rs. 1,50,000

Change in inventory = Opening inventory – Closing inventory

= 1,70,000 – 1,30,000

= Rs. 40,000

Cost of revenue from operation

= 6,90,000 + 40,000 + 20,000

= Rs. 7,50,000

Inventory Turnover Ratio = `750000/150000` = 5 times

Inventory conversion period = `"No. of. months in a year"/"Inventory turnover rates"`

`= 12/5` = 2.4 Months