A trader carried an Average Inventory of Rs. 75,000. His inventory turnover ratio is 12 times. Find out his profit, if he sells at a profit of 20% on sales.
Answers
Explanation:
★ Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
⇒ 12 = Cost of Goods Sold / 75,000
Cost of Goods Sold = Rs. 9,00,000
Net Sales = Cost of Goods Sold + Gross Profit
Let,
Net Sales = x
Net Sales = Cost of Goods Sold + Gross Profit
⇒ x = 9,00,000 + 20% of x
⇒ x = 9,00,000 + 20x/100
⇒ x = 9,00,000 + 0.2x
⇒ x - 0.2x = 9,00,000
⇒ 0.8x = 9,00,000
⇒ x = 9,00,000/0.8
⇒ x = 11,25,000
Net Sales = Rs. 11,25,000
★ Gross Profit = Net Sales - Cost of Goods Sold
⇒ 11,25,000 - 9,00,000
⇒ 225,000
Gross Profit = Rs. 225,000
Therefore, His profit will be Rs. 225,000.
Given :-
A trader carried an Average Inventory of Rs. 75,000. His inventory turnover ratio is 12 times.
To Find :-
Profit
Solution :-
We know that
Inventory turnover ratio = Cost of good sold/Average inventory
12 = Cost of good sold/75000
12 × 75000 = Cost of good sold
900000 = Cost of good sold
Let the required sales be s
We know that
Sales = Profit + Cost of good sold
x = 20% of x + 90000
x = 20/100 × x + 900000
x = x/5 + 900000
x - x/5 = 900000
5x - x/5 = 900000
4x/5 = 900000
x = 5 × 900000/4
x = 1125000
Now,
Profit required = Total sales - Cost of good sold
Profit required = 1125000 - 900000
Profit required = 225000