Question

From the given information, calculate the Inventory Turnover Ratio:

Revenue from Operations (Sales): ₹ 2,00,000; GP : 25%; Opening Inventory was 1/4th of the value of Closing Inventory; Closing Inventory was 40% of Revenue from Operations.

Answer 1

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

Sales = ₹ 22,00,000

Gross profit = 25% on sales 

= `25/100 xx 2,00,000`

= ₹ 50,000

Cost of Revenue from Operations = Net Sales − Gross Profit

= ₹ 2,00,000 − ₹ 50,000

= ₹ 1,50,000

Closing Inventory = 40% of sales 

= `40/100 xx 2,00,000`

= ₹ 80,000

Opening Inventory = `1/4 xx 80,000`

= ₹ 20,000

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

= `(₹ 20,000  + ₹ 80,000)/2`

= `(₹ 1,00,000)/2`

= ₹ 50,000

Inventory Turnover Ratio = `(₹ 1,50,000)/(₹ 50,000)`

= 3 times