Question

43. What is the Inventory turnover ratio, when the following is given? cost of revenue from operation Rs. 1,50,000; closing inventory Rs. 60,000; excess of closing inventory over opening inventory Rs. 20,000.
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Answer 1

Answer:

Inventory Turnover Ratio = CRFO/Average Inventory

CRFO = 1,50,000

Closing inventory = 60,000

Opening inventory is 20,000 more than closing inventory.

So,

Opening inventory = 60,000+20,000

= 80,000.

Since, Opening Inventory and Closing Inventory are been found, now Average Inventory have to be calculated.

Average Inventory = Opening inventory + Closing Inventory / 2

= 80,000 + 60,000/2

= 1,40,000/2

= 70,000

Inventory Turnover Ratio = CRFO/Average Inventory

= 1,50,000/70,000

= 2.14 times

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Answer 2

Explanation:

Solution :

★ Inventory Turnover Ratio :

$\sf{\longrightarrow{\dfrac{Cost \: of \: Revenue \: from \: Operation}{Average \: Inventory}}}$

$\sf{\longrightarrow{\dfrac{Cost \: of \: Revenue \: from \: Operation}{ \frac{Ope.ning \: Inventory \: + \: Closing \: Inventory}{2}}}}$

Cost of Revenue from Operation = 1,50,000

$\sf{\longrightarrow{\dfrac{1,50,000}{Average \: Inventory}}}$

★ Average Inventory =

$\sf{\longrightarrow{\dfrac{Ope.ning \: Inventory \: + \: Closing \: Inventory}{2}}}$

Closing Inventory = Rs. 60,000

Excess of Closing Inventory over Opening Inventory = Rs. 20,000

Let,

Opening Inventory = x

Closing Inventory = x + 20,000

60,000 = x + 20,000

60,000 - 20,000 = x

40,000 = x

Opening Inventory = Rs. 40,000

$\sf{\longrightarrow{\dfrac{40,000 \: + \: 60,000}{2}}}$

$\sf{\longrightarrow{\dfrac{1,50,000}{ \frac{40,000 \: + \: 60,000}{2}}}}$

$\sf{\longrightarrow{\dfrac{1,50,000}{ \frac{1,00,000}{2}}}}$

$\sf{\longrightarrow{\dfrac{1,50,000}{50,000}}}$

Cost of Revenue from Operation = 1,50,000

Average Inventory = 50,000

★ Inventory Turnover Ratio :

$\sf{\longrightarrow{\dfrac{1,50,000}{50,000}}}$

Inventory Turnover Ratio = 3 times.

Therefore,

Inventory Turnover Ratio = 3 times.