Question

Revenue from Operations ₹ 8,00,000; Gross Profit Ratio 25%; Opening Inventory ₹ 1,00,000; Closing Inventory ₹ 60,000. Inventory Turnover Ratio will be ______.

Options

• 10 Times

• 7.5 Times

• 8 Times

• 12.5 Times

Answer 1

Revenue from Operations ₹ 8,00,000; Gross Profit Ratio 25%; Opening Inventory ₹ 1,00,000; Closing Inventory ₹ 60,000. Inventory Turnover Ratio will be 7.5 Times.

Explanation:

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

Gross Profit = 25% of Revenue from Operation

=` 25/100 xx 8,00,000`

= ₹ 2,00,000

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

= 8,00,000 − 2,00,000

= ₹ 6,00,000

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

= `(1,00,000 + 60,000)/2`

= `(1,60,000)/2`

= ₹ 80,000

Inventory Turnover Ratio = `(6,00,000)/(80,000)`

= 7.5 Times