Question

Revenue from Operations10,00,000, Average Inventory 1,25,000, Gross Loss on Sales 25%. Find the Inventory Turnover Ratio.

Options

• 8 Times

• 10 Times

• 2 Times

• None of these.

Answer 1

10 Times

Explanation:

Given:

Revenue from Operations = ₹ 10,00,000

Gross Loss Ratio = 25% on Sales (Revenue from Operations)

Average Inventory = ₹ 1,25,000

$$\begin{aligned} \text{Gross Loss} &= 25\% \text{ of } 10,00,000 \\ &= {₹\ 2,50,000} \end{aligned}$$ 

$$\begin{aligned} \text{Cost of Revenue from Operations} &= \text{Revenue from Operations} + \text{Gross Loss} \\ &= 10,00,000 + 2,50,000 \\ &= {₹\ 12,50,000} \end{aligned}$$

Now, the Inventory Turnover Ratio formula is:
$$\begin{aligned} \text{Inventory Turnover Ratio} &= \frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}} \\ &= \frac{12,50,000}{1,25,000} = \mathbf{10\ Times} \end{aligned}$$