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Question
What will be the amount of gross profit of a firm if its average inventory is ₹ 80,000, Inventory turnover ratio is 6 times, and the Selling price is 25% above cost?
Options
₹ 1,20,000
₹ 1,60,000
₹ 2,00,000
None of the above
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Solution
₹ 1,20,000
Explanation:
Inventory Turnover Ratio = `"Cost of Revenue from Opration"/"Average Inventory"`
6 = `("Cost of Revenue from Opration")/(80,000)`
Cost of Revenue from Operation = 80,000 × 6
= ₹ 4,80,000
Gross Profit = 25% of Cost
= `25/100 xx 4,80,000`
= ₹ 1,20,000
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