Question

Opening Inventory ₹ 40,000; Closing Inventory ₹ 50,000; Revenue from Operations ₹ 8,00,000; Gross Profit Ratio 20%. Calculate Inventory Turnover Ratio.

Answer 1

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

`20/100 xx ₹ 8,00,000` = ₹ 8,00,000 − Cost of Revenue from Operations

Cost of Revenue from Operations = 8,00,000 − `20/100 xx ₹ 8,00,000`

= ₹ 8,00,000 − ₹ 1,60,000

= ₹ 6,40,000

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

= `(₹ 40,000  + ₹ 50,000)/2`

= `(₹ 90,000)/2`

= ₹ 45,000

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

= `(₹ 6,40,000)/(₹ 45,000)`

= 14.22 Times