Question

Opening Inventory ₹ 29,000; Purchases ₹ 2,42,000; Revenue from Operations ₹ 3,20,000; Gross Profit Ratio is 25% on revenue from operations. Calculate Inventory Turnover ratio.

Answer 1

Gross Profit = Revenue from Operations − Cost of Revenue from Operations

`25/100 xx ₹ 3,20,000` = ₹ 3,20,000 − Cost of Revenue from Operations

Cost of Revenue from Operations = ₹ 3,20,000 − `25/100 xx ₹ 3,20,000`

= ₹ 3,20,000 − ₹ 80,000

= ₹ 2,40,000

Cost of Revenue from Operations = Opening Inventory + Purchases − Closing Inventory

₹ 2,40,000 = ₹ 29,000 + ₹ 2,42,000 − Closing Inventory

Closing Inventory = ₹ 29,000 + ₹ 2,42,000 − ₹ 2,40,000

= ₹ 31,000

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

= `(₹ 29,000  + ₹ 31,000)/2`

= `(₹ 60,000)/2`

= ₹ 30,000

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

= `(₹ 2,40,000)/(₹ 30,000)`

= 8 Times