Question

74. *₹2,00,000 is the Cost of Revenue from Operations (Cost of Goods Sold), during the year. If Inventory turnover Ratio is 8 times, calculate inventories at the end of the year. Inventories at the end is 1.5 times that of the beginning

Answer 1

Answer:

₹ 30,000

Inventories at the end of the year = ₹ 30,000

Explanation:

Given :

• Cost of Goods Sold = ₹ 2,00,000

• Inventory turnover Ratio = 8 times

• Inventories at the end of the year = 1.5 times that of the beginning

To Find :

• Inventories at the end of the year

Solution :

Inventory turnover Ratio =

$\sf{Inventory \: turnover \: Ratio \: = \: \frac{Cost \: of \: Goods \: Sold}{Average \: Inventory}}$

$\sf{8 \: = \frac{2,00,000}{Average \: Inventory}}$

$\sf{Average \: Inventory = \frac{2,00,000}{8}}$

Average Inventory = ₹ 25,000

___________________________

Let,

Inventory in the beginning = x

Inventory at the end = 1.5x

$\sf{\:Average \:inventory \: = \: \frac{Inventory \: in \: the \: beginning \: + \: Inventory \: at \: the \: end}{2}}$

⇒ $\sf{25,000 \: = \: \frac{x \: + \: 1.5x}{2}}$

⇒ $\sf{25,000 \: = \: \frac{2.5x}{2}}$

⇒ 2.5x = 50,000

⇒ x = 50,000 / 2.5

⇒ x = 20,000

★ Inventory in the beginning = ₹ 20,000

__________________________

Inventory at the end = 1.5x

⇒ 20,000 × 1.5

⇒ 30,000

Inventory at the end = ₹ 30,000

Answer is,

₹ 30,000

Inventories at the end of the year = ₹ 30,000