Question

On the basis of following data, the cost of revenue from operations by a company will be:

Opening Inventory ₹ 70,000; Closing Inventory ₹ 80,000; Inventory Turnover Ratio 6 Times.

Options

• ₹ 1,50,000

• ₹ 90,000

• ₹ 4,50,000

• ₹ 4,80,000

Answer 1

₹ 4,50,000

Explanation:

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

= `(70,000 + 80,000)/2`

= `(1,50,000)/2`

= ₹ 75,000

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

6 = `("Cost of Revenue from Operations")/(75,000)`

Cost of Revenue from Operations = 75,000 × 6

= ₹ 4,50,000