Question

(i) Revenue from Operations: Cash Sales ₹4,20,000; Credit Sales ₹6,00,000; Return ₹20,000. Cost of Revenue from Operations or Cost of Goods Sold ₹8,00,000. Calculate Gross Profit Ratio.
(ii) Average Inventory ₹1,60,000; Inventory Turnover Ratio is 6 Times; Selling Price 25% above cost. Calculate Gross Profit Ratio.
(iii) Opening Inventory ₹1,00,000; Closing Inventory ₹60,000; Inventory Turnover Ratio 8 Times; Selling Price 25% above cost. Calculate Gross Profit Ratio.

Answer 1

(i) Net Sales = Cash Sales + Credit Sales - Sales return

= 420000 + 600000 - 20000 = 1000000

Cost of Goods Sold = 8,00,000

Gross Profit = Net Sales - Cost of Goods Sold

= 1000000 - 800000 = 200000

Gross Profit Ratio = `"Gross Profit"/"Net Sales" xx 100`

`= 200000/1000000 xx 100 = 20%`

(ii) Average Stock = 1,60,000

Stock Turnover Ratio = 6 Times

Stock Turnover Ratio = `"Cost of Goods Sold"/"Average Stock"`

`6 = "Cost of goods sold"/160000`

Cost of goods sold = 960000

Gross Profit = 25% on Cost

Gross Profit = 25% on cost

∴ Gross Profit =`25/100 xx 960000 = 240000`

Net Sales = Cost of goods sold + Gross Profit

= 960000 + 240000 = 1200000

Gross Profit Ratio = `"Gross Profit"/"Net Sales" xx 100`

`=240000/1200000 xx 100 = 20%`

(iii) Opening Inventory = 1,00,000

Closing Inventory = 60,000

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

`= (100000 + 60000)/2 = 80000`

Inventory Turnover Ratio = `"Cost of Goods Sold"/"Average Inventory"`

`8 = "Cost of Goods Sold"/80000`

Cost of Goods Sold = 640000

Gross Profit = 25% on Cost

Gross Profit = `25/100 xx 640000 = 160000`

Net Sales = Cost of Goods Sold + Gross Profit

= 640000 + 160000 = 800000

Gross Profit Ratio = `"Gross Profit "/"Net Sales" xx 100`

`= 160000/800000 xx 100 = 20%`