Question

Revenue from Operations (Sales)	₹ 7,00,000
Gross Profit	₹ 1,40,000
Inventory Turnover Ratio	7 Times

Find out the value of Closing Inventory if Closing Inventory is ₹ 16,000 more than the Opening Inventory.

Answer 1

Gross Profit = Revenue from Operations − Cost of Goods Sold

₹ 1,40,000 = ₹ 7,00,000 − Cost of Goods Sold

Cost of Revenue from Operations = ₹ 7,00,000 − ₹ 1,40,000

= ₹ 5,60,000

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

7 = `(₹ 5,60,000)/"Average Inventory"`

Average Inventory = `(₹ 5,60,000)/7`

= ₹ 80,000

Closing Inventory = Opening Inventory + ₹ 16,000

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

₹ 80,000 = `("Opening Inventory" + "Closing Inventory" + 16000)/2`

Opening Inventory = `₹ 80,000 - 1/2` of ₹ 16,000

= ₹ 80,000 − ₹ 8,000

= ₹ 72,000

Closing Inventory = ₹ 72,000 + ₹ 16,000

= ₹ 88,000